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Falls have a positive spin   2009-07-28 - VIR

Ho Chi Minh Stock Exchange (HoSE) trading volumes of local securities in July saw 20-25 million shares changing hands on a daily basis. In June, the HoSE’s average daily trading volume was between 60-80 million shares, with 100 million shares changing hands on June 10, after the VN Index witnessed a three month rally from its low of 235.5 points on February 24.

Several market analysts and investors, especially retail ones, nervously viewed the sharp market trading volume drops as a negative signal of further market falls. Kenanga Vietnam Securities’ chief analyst Pham Kinh Luan, however, said the markets’ falls were mainly attributed to sellers not wanting to sell at lower prices, while cash-rich buyers were not ready to buy at higher prices.

“I think these current market movements are normal,” Luan said, adding that by the year’s end, the Vietnamese indices might go higher thanks to better than expected corporate earnings. Quach Manh Hao, head of Thang Long Securities’ Research and Investment Advisory Department, added that when the market went lower, sellers would not want to dump any more stocks, resulting in falling trading volumes.

“That indicates the market is near the bottom as technical analysis suggests buying opportunities for the longer-term,” Hao said. The VN Index closed last trading week on July 24 at 454.71 points, up 10 per cent against the 412.88 points on July 20 after correcting around 20 per cent from its recent peak of 512.46 points on June 9, with around 27 million shares changing hands on July 24. Hao said the most important factor that influenced Vietnam’s market was cash flows which were not affected by brokerage firm cash balances, but by the “money creation formulas”.

In a simple sense, the operating cash cycle has been shortened, compared to it few weeks ago. Besides, lowered credit supply target and decreased compulsory reserve interest rates should be perceived negatively by investors as signs of monetary tightening. “Although it would take time to prove in reality, this is obviously not the thing that the market wants,” Hao said.

In a related development, the State Bank said from August it would cut Vietnamese dong compulsory reserves interest rates it pays to commercial banks from 3.6 to 1.2 per cent without changes to compulsory reserve levels. It will be the second reduction in the dong reserves rate this year after a cut in January, when the central bank lowered it from 8.5 per cent. Since March 1, banks have been asked to set aside compulsory reserves equivalent to 3 per cent of their deposits, down from 5 per cent previously.

Vietnamese Prime Minster Nguyen Tan Dung recently asked the State Bank to keep credit growth at below 27 per cent in 2009, down from the previously adjusted 30 per cent, due to inflation fears.

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