Declines on Wall Street last week had a sharper impact on local stock trading, said securities analysts, driving the HCM City Stock Exchange’s VN-Index down 5.68 per cent from the previous Friday’s close to 549.73.

On the Ha Noi market, meanwhile, the HNX-Index also dropped by 3.38 per cent on the week to close on Friday at 177.27.

US market movements have always had a cyclic effect on local market growth and were now entering a new cycle, said FPT Securities Co analyst Nguyen Binh Duong, pointing to unfavourable US employment and production line data last week and its domino effect on markets.

John Nolan, an analyst with a HCM City-based fund management company, agreed that US markets were a drag on domestic investors despite positive assessments of market prospects from the Manulife Viet Nam Fund or the central bank’s maintenance of the stability of the financial system, by tightening credit and holding the prime interest rate at 7 per cent.

An excessive reaction was unavoidable, he suggested, particularly in light of high net sales by foreign investors which, last week, totalled a net of 8.6 million shares on both stock exchanges.

"Despite holding only 10 per cent of capitalised market value, foreign investors remain influential on an emerging market such as Viet Nam’s, especially when your market is absorbing a substantial amount of newcomers," said Nolan.

The fact that foreign investors were net sellers would also indicate that the current rally was the last gasp of speculators who use financial leverage, wrote Thang Long Securities Co Quach Manh Hao, in a technical analysis on Friday market.

Leverage

Nguyen Duc Thanh from the Centre for Economic and Policy Research said that financial leverage, such as loans from commercial banks to finance stock investments, has been over-used on the stock market, adding, "It’s not simple to get accurate data on the over-use of financing as investors cannot announce that ‘I am borrowing money for securities trading.’"

But it was hard for the market to achieve a significant value – currently averaging VND4-5 trillion (US$225 – 280 million) per session – without this leverage, Thanh said.

The centre has calculated that the VN-Index could reach 640 points this year only if listed firms posted growth of 20 per cent this year – unlikely in the wake of the economic crisis.

If regulators were to put the brakes on the use of this financial leverage, the market bubble could break anytime, Thanh said.

Nguyen Binh Duong of FPT Securities Co attributed the sharp decline of market indices on Friday as proof of the side effects of an over-use of leverage. "When the market is in an adjusting phase, financial leverages puts profit-taking pressure on the market," he said.

Trading volumes on HCM City Stock Exchange last week averaged over 74 million shares per day, generating an average value of VND3.6 trillion ($202.2 million), a decrease of 1.8 per cent from the previous week’s value.

Sacombank (STB) was, once again, the most active share on the week, with a combined 37.7 million shares changing hands.

On the Ha Noi Stock Exchange, trading volumes averaged a brisk 39.4 million shares per day, for an average daily value of VND1.6 trillion ($89.9 million). Kim Long Securities (KLS) was the most-active share on the northern market, with 21.4 million traded.

Based on Friday’s trades, Hao said that some bottom-searching was apparent at the close, a positive sign. He suggested the current point level was a solid psychological support but, more cautiously, predicted shares to regroup with the VN-Index at around 518-21.

Duong expected the US market to continue exerting a downward pressure on domestic indices this week and warned investors to cut down on their use of financial leveraging of stock investments.

Absorbing the news that commercial banks could list shares on the UPCoM market without central bank approval, the UPCoM-Index gained a modest 0.6 per cent to end last week at 68.02 points. Daily trading volume on this market still averaged just 560,000 shares for a value of VND6.5 billion ($365,168).

Nolan urged regulators to give foreign investors greater flexibility to trade in this market.