Le Dang Doanh, Senior Economist, said people should be informed on the measures state agencies are applying to curb inflation, which can help avoid shocks to the stock market.

The recent decisions by the State Bank of Vietnam have been bitter pills the stock market has been forced to swallow. The market saw investor panic during the last two trading sessions, as shares were being sold for floor prices. Le Dang Doanh, Senior Economist and former Head of the Central Institute for Economic Management was asked how can state management agencies calm securities investors?

What would you say about the central bank’s measures to curb inflation?

I think the five measures the central bank has taken are basic ways to deal with inflation, as taught in economics textbooks. In theory, these measures are the right remedy for curbing inflation, but in terms of the dosage, I think it has been far too much, which has adversely impacted joint stock banks.

What I want to say is that the central bank needs to inform the public in advance, so that banks and businesses can prepare. Before an action is taken, disbursing that information to businesses, and the public at large, can help avoid shocks to the market.

How would you explain the falls of the stock market? Is it because of the central bank’s recent decisions?

It is true that the central bank’s actions have resulted in the continuing stock market plunge. But I also think investors are overly panicked in response. What securities investors see is banks trying to block loans, and can no longer anticipate what the stock market will do.

I think we need to let people know what the Government and state management agencies are going to do. The information about the US FED’s meetings and its solutions are usually provided before, during and after the discussions; and resultantly, people understand and stay calm when it makes a decision.

As you may know, the State Securities Commission is suggesting allow foreign strategic foreigners to pay in foreign currencies for shares. Do you think will the solution help settle the problem of foreign currency excess?

This is really a controversial suggestion. If we allow foreign investors to pay in foreign currencies, this will have unhealthy impacts on the national economy, because this may increase the dollarization effect. I think thorough discussion is needed before making any decision.

Press agencies, when reporting about the stock market these days, write that securities investors are fleeing from the market. What would you advise them?

Investors are losing because they have short-term vision, they should have a long term investment strategy. Vietnam’s economy has a high growth rate, which will help the stock market develop. If investors have huge capital, they should buy shares now, while commodities are cheap

You have said that investors’ psychological feeling is the main reason behind the falls of the stock market. What should we do to reassure investors, then?

State management agencies should hold press conferences to explain to investors the market situation and clarify what they are going to do to stabilize the market. I have to repeat that the measures to stabilize the market should be released to the public in advance.

It is wrong for state management agencies to keep quiet when investors are in panic.

Source: VIR.