VietNamNet Bridge – The stock market will see large improvements on both local markets this year, despite many problems in both local and global economic conditions, said a Vietnam Investment Securities Company analyst.

Traders work at the trading floor of Sai Gon Securities. (Source: VNA)

Nguyen Huu Binh, the analyst, said the benchmark VN Index on the HCM Stock Exchange might reach 670 points by the end of this year. The southern index lost 0.1 percent on the last trading day of 2015, though it rose 6.1 percent, in general, to close last year at 579.03 points.

The Hanoi Stock Exchange's HNX Index will likely end this year at 90 points, Binh said. The Hanoi-based index gained 0.9 percent on December 31 to finish last year at 79.96 points, a decrease of 3.6 percent over the year.

Both local indices will receive strong support from foreign purchases for local stock assets, as they have been granted permission to raise capital in Vietnamese public companies and have disregarded fear over possible losses resulting from the weakened Vietnamese dong against the US dollar. Other concerns include the free trade agreements signed between Vietnam and other countries, which will benefit local exporters, such as textile and garment firms and fishery companies, he said.

Last year, the stock market received a positive impact from the three policies which were issued by the Government and came into effect last year, including Decree 60/2015/ND-CP, which was issued on June 26 and came into effect in September.

Decree 60 allows foreign investment without a limit in public companies that are not subjected to conditional businesses, and in government and corporate bonds. Investors have expected the decree to boost market liquidity, create investment opportunities for foreign investors and upgrade the Vietnamese market's status from a frontier market to an emerging market.

Another policy was Circular 36/2014/TT-NHNN, which took effect in February and set safe operational limits and new ratios for credit institutions and branches of foreign-owned banks in Vietnam, as well as put limits on stock investments and set conditions for banks when offering loans.

This circular aims to prevent the cross-ownership between banks and credit institutions in financial stock assets and ensure the transparency and financial security for financial firms if they seek to make investments in financial products.

The last policy was the decision made by the State Capital Investment Corporation to sell stakes in 10 large companies, including dairy producer Vinamilk (VNM), software producer FPT Corp (FPT) and Tien Phong Plastic JSC (NTP), in order to gain 4 billion USD for the State budget.

This decision was a significant move by the Government to provide opportunities for both local and overseas investors who want to make investments in quality products on Vietnam's stock market.

Meanwhile, the national stock market will see problems with both local and international markets regarding the decline of global oil prices, the weakened Chinese yuan and interest rate hikes made by the US' central bank, Binh said.

Global oil prices have been falling as demand drops and the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut production. Also, the US benchmark crude West Texas Intermediate (WTI) has fallen 26 percent since the beginning of last year to 37.04 USD per barrel on December 31, posting a nearly eleven-year low.

Oil prices will likely see further drops as Iran, one of the largest crude exporters, is lifted from the 40-year trading ban imposed by the US, which will flood the global oil market with more products from Iran.

As a result, the decline in global oil prices will hurt local energy stocks, whose profits depend largely on selling oil products imported from overseas suppliers. PetroVietnam Gas Corp (GAS), the largest energy company, has dropped nearly 50 percent in the past year.

Another factor that affected the local stock market was the heavy pressure caused by the weakened Vietnamese dong against the US dollar, which depends on the interest rate hike taken by the US' central bank and the depreciation of the Chinese yuan. The forex rate between the Vietnamese dong and the US dollar sometimes reached the trading band of 22,547 VND per dollar, as set by Vietnam's central bank.

Further, the Chinese yuan has been devalued by 4.6 percent against the US dollar over the last year, as China encounters a slowdown in its export-based economy, especially after the yuan was added into the reserve basket by the International Monetary Fund (IMF) in late November.

Meanwhile, in the middle of December, the US central bank announced the first interest rate hike since 2006, and the decision has caused foreign investors to withdraw capital from emerging markets amid fears that weakened local currencies against the US dollar might result in losses for their investments.

Market liquidity or investment flow will remain a problem for the stock market, Binh said, adding that the daily trading volume must be at least 150 million shares in order to ensure the stock market's development.

Last year, the stock market traded a daily average volume of 160 million shares worth 2.5 trillion VND (111 million USD), a decrease of 17 percent from 2014.

VNA