submarino

How Vietnam is Coping with Hyper-Inflation

With inflation already at 27% and the monthly inflation change on a seasonally adjusted basis also beginning to show an improvement, we might have a top in inflation. However, the 31% fuel price hike announced by Petrolimex last week is yet to filter through. The subsidy cut should add - according to HSBC - roughly 2ppts to headline inflation, taking the inflation rate to 29% in August, assuming everything else is unchanged. The trouble obviously is that everything else is not unchanged, with the lagged effects of higher food commodity prices and strong demand still feeding through, meaning that inflation will probably hit 30% before the year is out.

So is Vietnam out of the woods? Unfortunately, maybe not. The key for Vietnam now, as for most Asian markets is how much growth is going to slow, as a result of the government’s anti-inflationary measures and because of weakening global conditions. The next worry is earnings growth, with some companies reporting surprising profit drops – and even losses – in H1. While the earnings outlook is unclear, the market remains risky.
The key to the direction of the market will be domestic investor sentiment. Foreigners have been steady buyers of the market this year, buying between USD28m and USD122m every month. Even when the market was in freefall, the country funds that raised money last but had not had the opportunity to invest it, continued to put money into Vietnam.
So, while the long-term Vietnamese story may well remain exciting, at the moment investment in this market remains only for the brave. In the current jittery global environment, I do not expect much in the way of new foreign money to find its way into a market as risky as Vietnam.

How Vietnam is Coping with Hyper-Inflation

VN-Index:
www.bloomberg.com/apps...

How Vietnam is Coping with Hyper-Inflation

Vietnam is a boom and bust story. Remember Thailand 1997/98.

Right from the beginning of the last week, the market received unfavorable news about the Ministry of Finance’s sudden decision to adjust petrol price up by over 30%. This gave rise to concerns about CPI growth rate for the rest of the year. Consequently, VN-Index
lost points throughout the week, with not even one successful correction session. Liquidity of the market drastically plunged compared to the week before. However, in general, liquidity remained rather good compared to the previous down correction. Average daily trading volumes on HoSE was over 9.7 million units. Supply – demand gap represented by excessive buy over sell order volume was very high right from the beginning of the week. Tuesday witnessed the record large supply-demand gap of –101 million units on HoSE. However, on the last two days of the week, the gap considerably narrowed, reaching only –31 million.

According to the latest statement released by the General
Statistics Office of Vietnam (GSO), CPI in July was 19.57% (not
factoring in high fuel prices), an increase of 1.13% from June—the
lowest increase since the beginning of 2008. It is also worth mentioning that CPI is not only influenced by gasoline price but also by other commodities such as steel, paper pulp, whose prices also increased in July. As Vietnam has to import up to 80% of inputs for production, the influence of world commodities’ prices on Vietnam’s CPI is significant.

How Vietnam is Coping with Hyper-Inflation

A funny chart...The VN-Index closed today @434.

The last trading week ended at an 11% percent loss. Today’s market response did however leave investors with some hope for this week. Why? Last Tuesday one stock managed to increase, Wednesday six, Thursday claimed twelve and finally Friday we saw 27 issues close at a gain. Today more than 70 issues managed to increase. This advance in market breadth is the kind of pattern we have seen that launched the recent rallies. Market offers have begun to plateau as no new major sell orders are placed, while buyers seem to be waiting for this week to identify whether or not the market will define a support level.
My advice would to be tread carefully, but pay attention to the rising small cap issues, as these could soon entice or continue enticing speculators thus giving the market the boost it needs to drive the index higher.

Why It's Not Too Late to Short China

Despite the 30% selloff, A-share valuations
remain expensive at 32x historical P/E and 5.9x P/BV.
Consensus’ 25% 2008-09 EPS growth expectation is
unrealistic amid global stagflation risks.
What is worse, A shares still trade at roughly a 70% premium to
H shares, which implies further downside for large-cap
financial and property stocks in both markets.
Considering domestic inflationary pressure and the rate
environment, until A shares come down to trade at
around 20x P/E, the market might not find too much
support.