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Viewing cable 08HANOI388, VIETNAM'S MARKET HAS FALLEN AND IT CAN'T GET UP

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Reference ID Created Released Classification Origin
08HANOI388 2008-04-04 09:38 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Hanoi
VZCZCXRO3331
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #0388/01 0950938
ZNR UUUUU ZZH
R 040938Z APR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7543
INFO RUEHHM/AMCONSUL HO CHI MINH 4535
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
UNCLAS SECTION 01 OF 02 HANOI 000388 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR BISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV VM
SUBJECT: VIETNAM'S MARKET HAS FALLEN AND IT CAN'T GET UP 
 
REF: Hanoi 377 
 
HANOI 00000388  001.2 OF 002 
 
 
1. (U) Summary: Vietnam's stock market has dropped 
dramatically in the first quarter of 2008, prompting the Government 
of Vietnam to take a number of steps to try to stabQe the market. 
 A plan to have the State Capital Investment Corporation (SCIC) buy 
shares did not prevent further declines.  Narrower trading bands on 
both the Hanoi and Ho Chi Minh City exchanges seem to have brought 
some short-term stability.  Local analysts and investors feel that 
the market may be making an appropriate adjustment towards more 
realistic value levels.  End Summary. 
 
VIETNAM'S STOCK MARKET SLUMPS 
------------------------------ 
 
2. (U) The Ho Chi Minh City Stock Exchange Index (Vietnam's official 
stock index) fell by 23 percent in dollar terms in the first two 
months of 2008, falling to 608 on March 4 and making it the worst 
performing stock market in Asia.  Mr. Tran Van Dung, Director of the 
Hanoi Securities Trading Center (HASTC) commented that "individual 
investors' anxiety had spread to some securities companies and fund 
management firms". 
 
3. (U) The Ministry of Finance (MOF) publicly cited increased stock 
supply (from new listings and additional stock issues), the global 
economic slow down, tightened monetary policy and lack of domestic 
investor confidence as reasons for the plunge.  Private investors, 
however, blame the rocketing inflation rate, rising prices for gold 
and real estate, and weak performance in global and regional bourses 
as major factors that prompted them to turn their back on the 
securities market.  Local bankers and analysts are also quick to 
point out that the securities lending cap of three percent for 
commercial banks has resulted in more capital going towards 
Vietnam's overheating property market (reftel). 
 
THE GOVERNMENT'S RESPONSE 
------------------------- 
 
4. (U) The Securities Business Association (SBA) called an urgent 
meeting on March 4 with the State Securities Commission (SSC) to 
propose measures to resuscitate the market, including a proposal for 
a temporary trading halt.  On March 5, the MOF, which oversees the 
SSC, postponed the initial public offerings (IPO's) of some large 
state owned enterprises such as SABECO and Agribank.  MOF also 
proposed a plan, endorsed by the Prime Minister, to require the 
State Capital Investment Corporation (SCIC) to buy shares of listed 
firms to stabilize the market.  Mr. Dung, HASTC's Director, believed 
that it was not yet necessary to suspend trading because the market 
levels did not warrant such action. According to him, the most 
urgent action needed was "to stabilize investors' psychology and 
confidence". 
 
SCIC TAKES ACTION, AS REQUIRED 
------------------------------ 
 
6.  (SBU) In a meeting with EconOff, Mr. Le Song Lai, Executive 
Director of SCIC, said that they were "instructed by the Government 
of Vietnam" to do something to resuscitate the market, and had 
already made its first purchase of shares.  "It was not our 
intention. It's an undesirable role," he explained.  According to 
Lai, SCIC is aware of foreign investors' concern about the 
government's intervention in the market, but he underscored that 
"this was only a temporary action, not a long term plan." 
 
7. (SBU) Pursuant to the plan, SCIC is allowed to determine the 
volume and type of stocks it will buy, when it will purchase, and 
when it will sell.  Lai wouldQ disclose the amount that SCIC is 
authorized to spend, but other sources have placed it at around 300 
million dollars (perhaps coincidentally, the approximate amount of 
SCIC's short-term capital).  SCIC will make its purchase decisions 
based strictly on liquidity and profitability of companies, and will 
not engage in "daily trading" or selling stocks for short term 
gains.  Mr. Lai said that SCIC will carefully consider the timing 
and number of share sales to avoid destabilizing the market. 
 
8. (SBU) SCIC's Lai believed that SCIC would exit as soon as the 
market stabilized.  He admitted that at the moment, it was too early 
to determine an exit date as "the market is still very volatile." 
He also felt that the GVN should consider setting up a fund to help 
stabilize the market in difficult times, rather than depending on 
SCIC's intervention.  Despite SCIC's role, the index closed out ten 
consecutive days of losses at 497 points on March 25, the lowest 
level in the past year. 
 
SSC ADJUSTS THE TRADING BAND, MARKETS RISE 
 
HANOI 00000388  002.2 OF 002 
 
 
------------------------------------------ 
 
9.  (U) The SSC also decided to narrow the daily share trading band 
from five to one percent (on the Ho Chi Minh Stock Exchange) and 
from ten to two percent (on the HASTC) effective March 27. The share 
trading band is the limit on how far share prices can move up or 
down from its reference price. The reference price is the average 
price of the last five previous trading sessions.  SSC narrowed the 
band to calm investors, prevent dramatic drops and discourage 
liquidation of shares due to margin calls. 
 
10.  (U) Following this action, the market has shown slight gains 
for the five consecutive days since the new bands were introduced, 
closing at 529 points on April 3.  Trading volume, however, has 
slowed to a trickle, with only 1.1 million shares worth VND 72 
billion (US$4.5 million) changing hands on April 3.  According to 
Bui Van Quang, deputy director of SME Securities, investors are 
holding shares because they do not see much profit in trading within 
the narrow band.  As a result, the SSC just widened the band from 
one to two percent (on the Ho Chi Minh Stock Exchange) and from two 
to three percent (on the HASTC), effective April 7. 
 
THE PRIME MINISTER SPEAKS 
------------------------- 
 
11.  (U) In addition to the above measures, the Prime Minister 
recently tasked a number of agencies to assist in GVN efforts to 
resuscitate the stock market.  He asked SCIC to focus on buying 
shares that weigh on the index to help stabilize the market.  He 
assigned the State Bank of Vietnam (SBV) to instruct state owned 
commercial banks and urged joint stocks banks to delay margin calls. 
 At the same time, the SBV is to increase buying foreign currency 
from banks and financial institutions including foreign currency 
from portfolio investments at reasonable exchange rates.  The PM 
will also allow listed firms to buy back their own shares to 
increase chartered capital without any restrictions. 
 
12.  (SBU) In an example of classic Vietnamese spin control, the PM 
assigned the Ministry of Public Security to investigate and deal 
with false information and rumors about the market.  He asked the 
MOF, the SBV and the SSC to organize a press conference to announce 
the first quarter socio-economic results.  Finally, the PM told the 
Ministry of Information and Communication to instruct media to 
report accurately and objectively on GVN's direction and policy on 
stock market development. 
 
13.  (SBU) Comment:  Local investors are not well educated about 
market basics, and many were buying and selling vigorously based 
more on emotion and the desire to make a quick buck versus any real 
understanding of value.  Area fund managers and analysts have 
commented that Vietnam's stock market is simply adjusting to a more 
rational, regionally appropriate level after an earlier period of 
unsustainable (and perhaps unjustified) growth.  End comment. 
 
MICHALAK