Vietnam’s small-cap bourse, the Hanoi Stock Exchange, slid to an all-time low on Friday as liquidity and confidence dwindle, marking another milestone in the country’s fall from favor for foreign and domestic investors alike.

The six-year-old Hanoi market ended the week off about 5 percent at 76.98 points after dipping as low as 76.81 points on Friday. It’s prior historical low was 77.55 points, which it touched during the depths of the global economic crisis on Feb. 24, 2009.

The exchange, populated with penny stocks and largely the arena of domestic investors, has a total capitalization of just $5 billion. Market analysts say foreign investors are interested in only a handful of the largest stocks. The biggest stock on the market is Asia Commercial Bank , which accounts for about a fifth of the total market cap.

Still, Hanoi’s fall of more than 50 percent over the past year can be seen as a gauge of how negative the conditions and sentiment have become during a period of macroeconomic upheaval at home and abroad, analysts say.

Vietnam’s other stock market, the Ho Chi Minh Exchange, which accounts for about 85 percent of Vietnam’s combined market capitalization, is off about 10 percent for the year. By comparison, the MSCI Asia-Pacific ex-Japan index has risen more than 30 percent over the past 12 months.

Foreign interest is a shadow of what it was in 2006-2007 when risk appetite was higher and Vietnam, a new World Trade Organization member then, was the next big thing.

“I think it’s very much a macro story,” said Sriyan Pietersz with JP Morgan in Thailand. “No one denies that Vietnam has some dynamic companies and the overall structural picture, from a demographic perspective and in terms of investment attractiveness, is there. But you need the macroeconomic stability to hold up as well.”

Adverse side effects

The economy has been on a rollercoaster ride since 2007 when hefty inflows contributed to overheating that pushed annual inflation to nearly 30 percent by August 2008. The authorities applied the brakes, only to find themselves faced with the global downturn, so they changed tack to promote growth.

Hanoi is now battling double-digit inflation. In April, annual inflation was at 17.5 percent and it is likely to be higher this month, economists say.

In response, the State Bank of Vietnam has repeatedly raised interest rates in recent months, trimmed its credit growth target and sought to aggressively cut lending to “non-productive sectors” including securities and real estate.

Margin calls have been on the rise as a result, said Nguyen Hoang Long, investment director at An Binh Securities Co. He added that banks were also under pressure from central bank rules that require them to raise their registered capital.

“The moves will do good to maintain macroeconomic stability in the long term. However, they have adverse side-effects on cash flows,” Long said.

Since January, only about 15 stocks out of more than 300 on the Hanoi exchange are in positive territory, Reuters data showed. More than 45 stocks were down by 50 percent or more.

“The southern market won’t fare as badly,” said Adrian Cundy, director and head of research at VinaSecurities. “The big risk for the Ho Chi Minh City exchange is if investor sentiment turns very negative towards the large-cap stocks.”

A recovery was still probably at least a quarter or two away.

“It’s encouraging that at least the short-term indicators such as rates and credit tightening are coming through,” said JPMorgan’s Pietersz.

“But, of course, what that means in practice is that there is going to be some pain in the near term as credit tightens and growth slows down.”