by Dickon Verey, Head of Trading Mekong Securities Co

What a difference a year makes.

In November of last year, Viet Nam’s stock market was positively buoyant, spurred on by the nation’s accession to the WTO, local enthusiasm and foreigners who couldn’t get enough of the Viet Nam story.

November 2007 offers quite a different picture.

The past month has been noticeable for its lack of positive market catalysts. In fact, investors have been constantly buffeted with difficult news and rumours about the mounting inflation rate, the passage of a new capital gains tax, and the timing of Vietcombank’s IPO and concerns over its search for a strategic partner, all weighing considerably on market sentiment.

International markets, meanwhile, have continued to be rocked by the US sub-prime crisis.

The VN-Index fell a total of 8.7 per cent in November and the Ha Noi market 10 per cent. The aggregate of both indices was down 9.1 per cent

Compare this to an aggregate increase of 7.6 per cent in October. Trading value also fell with the combined trading value of both exchanges falling from $125,870,821 per day in October to $88,616,428 per day in November, a 42-per-cent drop in a single month.

Many investors and market pundits were confounded, having expected a strong performance in the fourth quarter, similar to 2006’s extraordinarily strong finish.

Still, the story isn’t all grim. Trading value in October was very strong, with the combined index volume at the second highest levels of the year. The importance of liquidity should not be underestimated as it is viewed as an important aspect of any emerging market.

Furthermore, foreign investors continue to firmly believe in the Viet Nam story. In October, foreigners bought $221 million worth of listed equities and sold $156 million. In fact, every month of the year with the exception of March, foreign investors were net buyers in listed equities in Viet Nam.

The VN-Index is also up 29.3 per cent from where it was one year ago and the Ha Noi market 40.4 per cent.

Heading into the final month of the year, the biggest question mark for many investors is Vietcombank.

A big part of the Viet Nam story is the continued equitisation of SOEs. Confusion and uncertainty surrounding Vietcombank have not surprisingly cast a pall on the market.

In the last few days, a number of rumours have spread that the long-awaited IPO would come at the end of December. Price talk has been speculative but seems to range from VND80,000 to VND130,000 a share.

Many are now focusing on the retention rate, or, in essence, how much money from the proceeds of the IPO will be put back into Vietcombank.

Without knowing this, it becomes difficult to do solid valuation work on the company so investors are eagerly awaiting a formal announcement from the Government and any mention of retention rates will receive a great deal of scrutiny.

There has also been considerable anxiety over the announcement of Vietcombank’s strategic partner. Various names have been tossed around, the most persistent being General Electric, Nomura and Goldman Sachs. From this list alone, it is clear that the Government and management of Vietcombank are looking for a strategic investor who would add to Vietcombank’s business rather than someone who will just make a financial investment.

The wrangling over valuation has gone on so long that it is pretty much certain that the strategic partners will now be chosen after the public share auction. In the mind of some this isn’t ideal, in light of what happened to Bao Viet, but there is also a strong belief within the Government that the strategic partner will be on board shortly after the IPO.

If the Vietcombank IPO is perceived as progressing well, there could be a strong move by the market at the end of December and pushing into the Lunar New Year. If the process is perceived as hitting additional snags, the next few months could be tricky.

Meanwhile, companies continue to post impressive results, the equity markets are continuing to develop, domestic investors are becoming increasingly knowledgeable and foreign investment shows no sign of slowing down.

The Viet Nam story is far from over.

Source: VietnamNews.