VIETNAM Stocks “get the shivers” amid deflation

Stocks “get the shivers” amid deflation

The consumer price index (CPI) decrease in June for the first time in the last three years, has been described by economists as “positive sign” for the national economy. However, this could be a worrying thing for the stock market in medium term.

CPI decrease causes worry than joy

The US JP Morgan Chase, in its report, commented that the CPI increase in June was lower than forecast and that this is a positive sign for the national economy. Meanwhile, domestic securities companies say they see worrying things in the deflation.


The CPI may decrease further and may reach to the bottom to 4.2-4.5 percent from the current 6.9 percent by September or October, before it rises again and reaches the threshold of 6-7 percent by the end of 2012.


At the securities trading session on June 25, right after the information about CPI decrease was released; both the VN Index on the HCM City bourse and HNX Index on the Hanoi bourse fell down. The prolonged liquidity has made share holders feel tired of making investment and pushed up selling, thus leading to the stock prices falling continuously.


At the HCM City Stock Exchange, the VN Index dropped by three points and came closer to the 424 point threshold with 216 stocks reducing in prices, 36 stocks increasing and 38 stocks unchanged in prices.


At the Hanoi Stock Exchange, HNX closing index decreased by 1.51 points or 2.06 percent to 71.80 points with 202 stocks decreasing in prices.


As such, the two indexes have decreased by 12 percent in the last month. On June 26, both VN Index and HNX Index dropped significantly by more than one percent.


Investors have become so tired of the stock investments that they try to escape from the market even when hearing good news. The low trading volumes showed that most investors keep reluctant to make investment, because they understand that the demand remains very week, while businesses would still have to struggle with high inventories. It is very likely that more companies would declare bankruptcy or remove the listing.


Investors have whispered in each others’ ears that deflation proves to be even more worrying than the high inflation which occurred in late 2011, when the stock prices decreased continuously and the stock market became nearly frozen.


FPT Securities Company believes that the cash flow still stays outside the market, despite some good news. FPTS sticks to its opinion about a new possible wave of stock price decreases.


Meanwhile, Bao Viet Securities Company thinks that the information about the CPI decrease of 0.26 percent in June has made investors feel more worried about the decrease of the total demand in the national economy.


The Military Bank Securities Company MBS pointed out that the 0.26 percent decrease in CPI in June has been interpreted in a negative way. The reluctance of investors has made the demand decrease significantly in the last three weeks. The good news such as the petrol price decrease, the low inflation rate and the interest rate decrease all cannot drive the cash flow back to the stock market.


What most investors have decided to do now is waiting for the new finance reports for the second quarter. They have every reason to worry about the performance of enterprises. The number of dissolved businesses in the first quarter was very high, the GDP growth has slowed down, while more social problems have arisen, including the higher unemployment rate.


However, if the demand stimulus package brings effect, and the State Bank successfully cuts down interest rates, they have every reason to cherish high hopes on the recovery of the stock market.

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