Investors should set up independent portfolios for stock trading, instead of watching which way the wind blows with the VN-Index, recommended FPT Securities Co analysts in their weekly market report.

The VN-Index has become increasingly dependent on the movements of a few large-cap shares and no longer reflects overall market movements, they said.

During last week’s trading on the HCM City Stock Exchange, for instance, investors sold off shares of both cooking trader MSN Group (MSN) and insurer Bao Viet Holdings (BVH), dragging the VN-Index down by nearly 20 points on the week, or 1.54 per cent, to a close last Friday of 472.71 points. MSN was down 4.8 per cent while BVH was down 3.7 per cent.

With trading resuming last Wednesday after a long holiday weekend, average daily trading during the three sessions was just over 23 million shares, worth an average of only VND597 billion (US$28.4 million).

“Such lazy trading means less interest in stocks,” said Nguyen Quang Minh, head of research for a HCM City-based securities firm. But, he said, while corporate performance seemed unfavourable now due to the economy, it would surely improve and stocks now looked like a value investment.

Tai Viet Securities Co showed that price-to-earnings (P/E) and price-to-book (P/B) ratios of Vietnamese stocks were at their lowest ever (9.25 and 1.25, respectively), while up to two-thirds of listed shares were trading below their book values.

Minh blamed investor skittishness on economic uncertainties, particularly regarding interest rates. “The State Bank of Viet Nam still retains a ceiling rate on deposits of 14 per cent – an obsolete rate compared to the current rate of inflation, with some proposals to lift the ceiling to 16 per cent or eliminate it entirely under consideration,” he said.

Meanwhile, many commercial banks have continued to hike lending rates sharply, up to 27 per cent for securities lending and 25 per cent for commercial lending, he said.

The central bank was also pressing commercial banks to reduce lending in non-productive sectors to less than 22 per cent of total lending by July, which would narrow the sources of credit available for securities investors, Minh added.

“These things have increased fears for market prospects,” he said.

Nevertheless, renewed investor interest helped spark trades during Friday’s session on the Ha Noi Stock Exchange, where the HNX-Index closed the day up 0.72 per cent, but wrapped up the week down by over 1 per cent overall to 82.69 points.

Average daily volume remained an anaemic 23.3 million shares, with an average daily value of VND307.3 billion ($14.6 million).

“The HNX-Index is drawing attention from investors with speculative intent,” said FPT Securities Co analyst Nguyen Van Quy. “After a long period of declines, some shares began to appear attractive compared to their corporate values.”

But they dismissed the chances of speculators to reap much reward. “The volatility of economic indicators won’t bring returns as high as expected.”

Source: VNS