Hanoi - Investors reacted sharply Wednesday to news that the poorly performing Ho Chi Minh City Stock Exchange would reduce its trading band, the amount by which stocks may rise or fall in a day, to 1 per cent starting Thursday. Foreign investors met the news with "incredulity," said Peter Ryder, CEO of Indochina Capital.
Vietnam's State Securities Commission announced the move Tuesday in what the commission's chairman, Vu Bang, termed a "temporary measure" to stem panic selling. The move also limited daily price movement on the smaller Hanoi exchange to 2 per cent.
Earlier this week, the Vietnam Index plunged to its lowest level in three years, dropping below 500 before bouncing back Wednesday with a 1.62-per-cent rise to 504.67.
Vietnam's market is the worst performer in Asia this year, down more than 40 per cent since January 1. In the spring of 2007, the Vietnam Index reached highs of more than 1,100.
The collapse of the market was triggered by government measures beginning in January to contract credit to curb inflation, which topped 15 per cent in February. The measures led to a credit crunch that forced margin investors to sell off securities.
Most foreign investors agreed that the tightening of the trading band would do little to stem the underlying reasons for the market's erosion.
"Local investors who are hemorrhaging and missing margin calls will sleep a little better, but nobody in the foreign investment community thinks it's a solution to the problems affecting the market," Ryder said.
Another foreign investor who asked not to be named said the longer-term effect of the narrow trading band would be to further reduce liquidity in the market and to increase the "country premium," or added risk foreign investors assign to securities in Vietnam.
He said local investors might shift into semi-legal, unmonitored over-the-counter transactions to evade the official price movement limits.
Dominic Scriven, director of Dragon Capital, said Vietnamese regulators were caught between a rock and a hard place.
"On the one hand, the Vietnamese market needs something to act as a circuit breaker" to bring a halt to selling driven by panic or margin calls, Scriven said. "But on the other hand, they need to maintain faith in the existence of a market which is free from non-market influences."
Vietnam's government website reported Wednesday that Prime Minister Nguyen Tan Dung had announced eight measures to cope with Vietnam's underlying macro-economic problems.
The measures to fight inflation include continuing tight monetary policy, reducing government expenditures and "tightening market management to keep prices of such products as steel, construction materials, food and fertilizer from rising."
It was not clear whether this measure referred to price controls.
The government's statistical office said the growth of the country's gross domestic product had slowed to a still-healthy 7.4 per cent in the first quarter of 2008, down from 8.5 per cent in the same quarter the previous year.
Inflation for the year through March was 16.4 per cent, and Vietnam's trade deficit jumped to more than 7 billion dollars for the first quarter, triple the deficit for the same period in 2007.
Sources said the inflation figure was worrisome because inflation generally falls sharply in March after the price increases for Tet, the Vietnamese New Year, which fell on February 7 this year.
