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NEWS UPDATES Asean Affairs       14  February 2011

Vietnam currency devaluation spurs stocks

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Stocks posted gains on both of the nation's exchanges over the course of the first week of trading following the recent lunar new year holiday, but the volume of trading remained sluggish. On the HCM City Stock Exchange, the VN-Index concluded the session on Friday at 519.98 points, a cumulative gain of 1.84 per cent of the previous Friday's close. Trades averaged just VND750 billion (US$47.4 million) per session, however, with an average daily volume of only 29 million. Tan Tao Industrial Park (ITA) was the most-active stock on the week, with 7.8 million shares traded, following the release of postive 2010 earnings.

Foreign investors continued to trade heavily in shares of insurer Bao Viet Holdings (BVH) and conglomerate Masan Group (MSN), but the trend shifted towards profit-taking, causing the two influential shares to decline by about 1.3-1.6 per cent during the final two sessions of the week, when foreign investors shifted to be net sellers on the HCM City bourse.

The State Securities Commission, during the week, asked the HCM City Stock Exchange to research ways to reduce the influence of specific large-cap shares on the movements of the VN-Index. "The sell-off by foreign investors hinted that they had wind of upcoming change in the foreign exchange rate," said an anonymous analyst who noted that Friday's shift in the official exchanges could cause losses of 6-8 percent in the value of foreigners' investment portfolios. The State Bank of Viet Nam on Friday devalued the dong by about 9 percent, setting the US dollar exchange rate at VND20,693. The central bank also narrowed the daily forex trading band from ? 3 percent to ? 1 percent.

Nguyen Thanh Cong, head of investment at a Ha Noi-based securities company, said it was nearly certain that foreign investors had been able to forecast the change in the exchange rate, with the significant sell-off in shares on Thursday and Friday, an immediate reaction to the change. "The market is still largely governed by foreign investors trading in some specific blue chips," Cong said. "It was already volatile before foreign investors changed their investment strategy." Moody's analyst Christian De Guzman told Dow Jones Newswires on Friday that Viet- nam needed to more aggressively tighten policy to alleviate overheating pressures and restore domestic confidence in the dong. The Party Congress in January, however, gave no indication that policy would shift from a pro-growth bias, De Guzman said.

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