"It is not sustainable. This market is currently overvalued," said Fiachra Aodh Mac Cana, director of VinaCapital. "If the market were to correct in the next month or two, I would not be surprised or disappointed. We need to slow down a bit."

Mac Cana was speaking at the Viet Nam Finance and Capital Markets conference, organised by the Ministry of Finance and EuroEvents, which closed in Ha Noi yesterday.

"Since (US president George) Bush’s famous visit to the stock exchange in HCM City (last November), we have seen quite a bit of frenetic activity," he said.

An influx of "hot money" is coming from offshore speculators, sometimes hedge funds, who are buying participation notes issued by foreign investment banks, which in turn buy shares in Viet Nam’s stock market, he said.

"These speculators may never have been to Viet Nam. They’re only buying because the Vietnamese market is hot, not for any good, fundamental reasons. "This kind of investment is especially unstable, because they will only stay as long as the market is hot. A market cannot be hot forever."

Prices were also driven up by an artificial shortage of stocks in certain parts of the market, Mac Cana said, adding that allocations for foreign investors are in short supply due to certain government limits.

According to current regulations, foreign investors can hold up to 49 per cent of listed firms, and 30 per cent of listed banks.

Peter R Ryder, chief executive officer for Indochina Capital, agreed that most of the listed stocks are overvalued and a correction is expected soon.

"However, we should not be overly panicked as this is a very normal process in developing markets. Here there is very good foundation for a healthy market," he said.

To better develop the market, the Government should push listed companies to improve corporate governance, improve financial disclosure and continue to encourage foreign participation in the market, Ryder said. "A lift of foreign holding ratio in listed firms would create opportunities for all, and make a much stronger and healthier market."

Total market capitalisation at Viet Nam’s Ha Noi and HCM City securities trading centres grew from less than $1 billion to $14 billion last year, about 23 per cent of GDP. There are 156 companies now listed on the two bourses compared to just 38 at the beginning of 2006. The VN-Index of the HCM City market has gone up 30 per cent so far this year to close at 1,040 points yesterday.

Officials are also expressing their doubts over the growth of the market.

Speaking to reporters on the sidelines of the same conference on Monday, Vu Bang, chairman of the State Securities Commission, said that the market’s upward movement can be attributed to companies posting high gains at the year end, rising FDI, high economic growth, and market reforms conducive to the development of the stock market.

He warned, however, that "the market is going really fast".

"We need to do some serious research on market behaviour, especially on herd reaction.

"We need to act in a prudent but positive way. The finance ministry has directed SSC to study and report directly to the Prime Minister," he said.

The SSC late last week announced a number of measures to tighten supervision over the market; among them was a decision to not lift the cap on foreign investor holdings in listed companies.

"Foreign investment into Viet Nam’s financial markets is very important to the nation’s economy; however, in the context of the markets growing fast and strong at the moment, it is not yet the right time to open up ‘room’ for foreign investors," Bang said.

Regarding insider trading, Bang said the SSC will examine and punish any violation. Insider trading cases, however, may not be easily detected due to limited technology and personnel capacity.

In this circumstance, he said, the SSC will issue documents to require listed companies to improve information disclosure to protect the interests of investors.

Source: VietnamNews