* Drop in Hanoi exchange reflects weak liquidity
* Stock market malaise is a macroeconomics story -analyst
* Big board also down, but by a smaller margin
By John Ruwitch
HANOI, May 20 Vietnam's small-cap bourse, the
Hanoi Stock Exchange , slid to an all-time low on Friday
as liquidity and confidence dwindle, marking another milestone
in the country's fall from favour for foreign and domestic
The six-year-old Hanoi market ended the week off about 5
percent at 76.98 points after dipping as low as 76.81 points on
Friday. It's prior historical low was 77.55 points, which it
touched during the depths of the global economic crisis on Feb.
The exchange, populated with penny stocks and largely the
arena of domestic investors, has a total capitalisation of just
$5 billion. Market analysts say foreign investors are interested
in only a handful of the largest stocks. The biggest stock on
the market is Asia Commercial Bank , which accounts for
about a fifth of the total market cap.
Still, Hanoi's fall of more than 50 percent over the past
year can be seen as a gauge of how negative the conditions and
sentiment have become during a period of macroeconomic upheaval
at home and abroad, analysts say.
Vietnam's other stock market, the Ho Chi Minh Exchange
, which accounts for about 85 percent of Vietnam's
combined market capitalisation, is off about 10 percent
for the year. By comparison, the MSCI Asia-Pacific ex-Japan
index has risen more than 30 percent over the past 12
Foreign interest is a shadow of what it was in 2006-2007
when risk appetite was higher and Vietnam, a new World Trade
Organisation member then, was the next big thing.
"I think it's very much a macro story," said Sriyan Pietersz
with JP Morgan in Thailand. "No one denies that Vietnam has some
dynamic companies and the overall structural picture, from a
demographic perspective and in terms of investment
attractiveness, is there. But you need the macroeconomic
stability to hold up as well."
ADVERSE SIDE EFFECTS
The economy has been on a rollercoaster ride since 2007 when
hefty inflows contributed to overheating that pushed annual
inflation to nearly 30 percent by August 2008. The authorities
applied the brakes, only to find themselves faced with the
global downturn, so they changed tack to promote growth.
A political cycle leading up to the 11th National Congress
of the Communist Party, which selected a new leadership line-up
in January, kept priorities skewed towards growth, but now Hanoi
is battling double-digit inflation. In April, annual inflation
was at 17.5 percent and it is likely to be higher this month,
In response, the State Bank of Vietnam has repeatedly raised
interest rates in recent months, trimmed its credit growth
target and sought to aggressively cut lending to "non-productive
sectors" including securities and real estate.
Margin calls have been on the rise as a result, said Nguyen
Hoang Long, investment director at An Binh Securities Co. He
added that banks were also under pressure from central bank
rules that require them to raise their registered capital.
"The moves will do good to maintain macroeconomic stability
in the long term. However, they have adverse side-effects on
cash flows," Long said.
Since January, only about 15 stocks out of more than 300 on
the Hanoi exchange are in positive territory, Reuters data
showed. More than 45 stocks were down by 50 percent or more.
"The southern market won't fare as badly," said Adrian
Cundy, director and head of research at VinaSecurities. "The big
risk for the Ho Chi Minh City exchange is if investor sentiment
turns very negative towards the large-cap stocks."
A recovery was still probably at least a quarter or two
"It's encouraging that at least the short-term indicators
such as rates and credit tightening are coming through," said
"But, of course, what that means in practice is that there
is going to be some pain in the near term as credit tightens and
growth slows down."
(Additional reporting by Vu Duy; Editing by Matt Driskill)