The Government's newly-announced measures to calm the monetary market helped lift shares on Friday, allowing the VN-Index to end the session at 457.27 points, an overall gain of 1.03 over the previous week's close.
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Shares on the HCM City Stock Exchange had declined for three consecutive days last week but began to rebound on Thursday when the Government announced its shift in monetary policy and reaffirmed no intention to further devalue the Vietnamese dong this year.
The State Bank of Viet Nam also said it would pump additional US dollars into the banking system to help stabilise the foreign exchange market, while interest rates would be managed flexibly in accordance with market changes.
But, on Friday, the central bank moved immediately to increase the prime interest rate from 8 per cent to 9 per cent, the first increase in the prime rate in 11 months – and further shoring up the bank's message that it would give priority to controlling inflation in the closing months of the year.
Friday's session in HCM City saw the market's strongest increase of the week, with both the value and volume of shares increasing by about 1.8 per cent.
Foreign investors were a significant contributor to the Friday rally, picking up shares worth VND318.3 billion (US15.9 million) – equivalent to 33.8 per cent of the total market value.
The overall value of trades per session decreased by almost 15 per cent from the previous week, however, to just VND663.8 billion ($33.2 million), with an average volume of around 27.8 million shares.
On the Ha Noi Stock Exchange, the HNX-Index closed at 112.80 on Friday, nearly unchanged compared with the previous Friday's close, despite advances in the final two days of the week.
Average daily value on the northern bourse fell 3.4 per cent from the previous week to VND428.5 billion ($21.4 million), with an average of 22.8 million shares changing hands per session.
"Evidently, news that the State Bank will sell US dollars to stabilise the soaring cost of the greenback on the black market has improved investor pyschology, as well as partly cooling fevered exchange rate pressures," said Nguyen Quang Minh, an analyst with a Ha Noi-based financial information provider.
Immediately after the Government announcement on Thurday, the black market exchange rate slid from a high VND21,070 per US dollar to VND20,700 and continued to decline to VND20,500 over the weekend.
The soaring US dollar has resulted from high public expectations and driven by concerns over inflation, the high trade deficit, dwindling foreign exchange reserves, and the growing foreign debt, Minh said.
"The Government decision can relieve investor fears, but movements of exchange rates depend on real supply and demand on the market," he said.
Foreign investors active
He warned that higher interest rates, meanwhile, driven by tighter Government financial policy, could negatively affect the stock market – as it has every previous time the State Bank has increased the prime rate.
Trading by foreign investors was a sustaining factor for both stock exchanges and contributed substantially to the modest market rebound. They picked up a net of over VND574 billion ($28.7 million) worth of shares in HCM City – over double the previous week's level – and were also responsible for a net buy of VND33.5 billion ($1.7 million) in Ha Noi, an increase of 221 per cent and the highest level since the beginning of the year.
Recently, a number of emerging economies around the world have had to take stronger measures to restrict "hot capital" from flooding into their markets, said VinaCapital managing director Andy Ho. Hot money flows have neglected Viet Nam, however, due to uncertainty over the value of the Vietnamese dong and other factors, Ho said.
According to Bloomberg, the current price-to-earnings (P/E) ratio of Vietnamese shares is 9.7, the lowest list of the region. By contrast, the P/E of Philippine shares is 18.5, of Indonesian 17.3, of shares on Chinese markets 14.6, and on the Thai market 14.1.
"Stocks are at low prices, and if the Government finds effective measures to restore the value of the dong, foreign investment will flow back into Viet Nam," Ho said.
Favourable developments in world markets and continued active trading by foreign investors were expected to continue supporting the domestic stock market in the coming week.
