Analysts warn of market correction

Analysts warn of market correction

"Be careful when others are greedy," Warren Buffett, one of the most successful investors in history, once said. Today, analysts in Viet Nam are invoking his words to warn investors that stock prices may not continue rising for long.

Shares on the HCM City Stock Exchange have climbed for 13 consecutive sessions and the benchmark VN-Index concluded Friday at 462.69 points, an increase of 8.6 per cent from the previous week.

On the Ha Noi Stock Exchange, the HNX-Index posted a more modest gain of 2.26 per cent during the course of the week, finishing Friday's session at 60.55 points.

According to Phan Dung Khanh, a senior analyst in HCM City, the strong rise the VN-Index saw last week was driven by new regulations that would be applied starting this week, including widened daily trading bands on both exchanges and an increased margin lending ratio effective in February. However, while this positive signal would lure investors back to the market, it also came laden with potential risks.

"Investors should be more cautious because gains attained in such a rush are likely to fall quickly," he said. "History proves this rule."

According to Bloomberg, Vietnamese stocks have recently performed outstandingly in the world market, surging 11 per cent since the beginning of the year. Many foreign investors predict the market will continue to do well this year on the back of the Government's support and an improved economy.

Both domestic and foreign investors have increasingly poured money into the market, boosting liquidity on both exchanges.

Last week, no session on the HCM City exchange saw total trades of below VND1 trillion (US$47.8 million). Ending the week, almost 98 million shares, averaging VND1.58 trillion ($75.6 million), were exchanged per session.

Meanwhile on the Ha Noi bourse, the daily trading volume reached 94.5 million shares, worth VND681 billion ($32.6 million) per day.

Blue chips were the best performers last week, with the VN30 tracking the top 30 shares by market capitalisation and liquidity on the HCM City Exchange rising 9.5 per cent to a close of 454.72 points.

Steelmaker Hoa Sen Group (HSG), PetroVietnam Finance (PVF) and food processor Masan Group (MSN) were among the top performers with HSG rising 24 per cent during the week, PVF up nearly 20 per cent and MSN up almost 18 per cent.

Aggressive foreign buys also contributed to the market increases last week, according to analysts of HCM City Securities Co (HSC).

Foreigners picked up shares worth a total of VND914 billion ($43.7 million) on the two national stock exchanges last week. Since the beginning of this year, their net buy value totalled $51 million.

"Foreign investors, especially professional investors, are used to underestimating the Vietnamese market and when the market shows signs of strong development, they rush to buy in case the market will increase throughout the year," HSC's analysts wrote in a report.

"However, such aggressive buys can last only for one or two weeks and then the market will likely adjust down." Analysts expect that such a correction will happen this week and that shares that gained 30-40 per cent would be the first to adjust.

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