VZCZCXRO7661
OO RUEHHM
DE RUEHHM #0552/01 1970209
ZNR UUUUU ZZH
O P 160209Z JUL 09 ZDK
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5957
INFO RUCPDOC/USDOC WASHDC PRIORITY 0144
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHI/AMEMBASSY HANOI PRIORITY 3861
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 6193
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000552 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/AWH 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ETRD PGOV SOCI VM
SUBJECT: HO CHI MINH CITY STOCK EXCHANGE BULL RUN IN CONTEXT 
 
REF: HANOI 475 
 
HO CHI MIN 00000552  001.3 OF 002 
 
 
¶1.  (SBU) Summary.  Ho Chi Minh City Exchange (HOSE) investors 
enjoyed a dramatic near-doubling in the value of the Vietnam 
Index from 235 on February 24 to 512 on June 9, 2009.  This 
coincided with a significant run-up in the major indexes on the 
other side of the ocean, but the steep gains also reflected 
Vietnam's healthiest economic quarter in some time.  This has 
led many financial sector analysts in HCMC to conclude the 
Government of Vietnam (GVN) has brought inflation under control 
and the economy has been buoyed by the GVN financial stimulus 
package.  But the Vietnam Index is still far off the 1180 peak 
reached on March 12, 2007 and signs of summer doldrums have 
appeared in recent weeks as direct foreign investment remains 
subdued and portfolio investors hesitate.  Still, some analysts 
predict a late summer resurgence if global investors are able to 
begin rebuilding their shattered confidence.  End summary. 
 
Riding the Rollercoaster 
------------------------ 
¶2. (SBU) The Vietnam Index, a broad market benchmark 
representing the value of the HOSE, climbed from its February 24 
low of 235 to top off at 512 on June 9.  The country director of 
Blackhorse Investment, Vietnam's top performing fund over the 
last six months, told EconOffs that it is important to look at 
2009 market activity in the context of the past few years.  The 
value of the Ho Chi Minh City Stock Exchange (HOSE) hit its 
all-time high of 1180 in March 12, 2007, shortly after Vietnam 
joined the WTO.  After oscillating around 1,000 throughout the 
first half of 2007, the HOSE began to drop steeply in the third 
quarter, landing below 400 in the second quarter of 2008 as high 
inflation and trade deficits generated concerns about the 
macroeconomy.  Then the global economic downturn struck in late 
2008, and the HOSE began a second tumble that would take it to 
its February 2009 lows. 
 
¶3. (SBU) By the time the HOSE reached its four-year low of 235 
on February 24, many HCMC analysts felt Vietnamese valuations 
were attractive, and the market responded accordingly.  The 
volume of trade rose from 175.11 billion dong (U.S. $9.7 
million) on February 24 to 2,920,440 billion dong (U.S. $160 
million) on June 9.  Dragon Capital has more money under 
management than any other fund in Vietnam, and according to one 
Dragon economist, important macroeconomic trends supported the 
buying:  Vietnam turned a $1.6 billion trade surplus in the 
first quarter of 2009 and inflation seemed to be in check (after 
approaching 30 percent in August 2008, headline inflation in 
March had fallen to 11.2 percent year-to-year), and lastly, 
retail sales figures were on the rise. 
 
¶4. (SBU) By June 2009, investors had worked through all the good 
economic news and moved into a holding pattern with no real 
sense of direction, one VinaCapital manager advised EconOffs. 
In the week beginning June 8, the HOSE reached 512, its highest 
value of 2009.  By the end of the week, though, a sell-off began 
that has persisted through to the present (as of July 13, the 
HOSE sat at 438.83) with major institutions selling massive 
volumes of stock.  Most analysts attributed the sales to simple 
profit taking, and some also theorized that major holders were 
restructuring their portfolios while they could take advantage 
of favorable prices.  A few believe the market has become 
over-valued.  But as the Blackhorse fund manager observed, it is 
not a pure coincidence that investor sentiment in the HOSE began 
to cool at roughly the same time the run-up in the value of U.S. 
stocks cooled off. 
 
Into the Looking Glass 
---------------------- 
¶5. (SBU) Though the domestic economy in Ho Chi Minh City has 
been relatively robust since the first quarter of this year, low 
levels of FDI remain troubling to investors.  Almost all the 
financial sector analysts ConGen has spoken with in recent weeks 
agree that the stimulus for another HOSE rally would likely come 
from outside Vietnam's borders -- either through increased FDI 
(which would signal long-term foreign confidence in Vietnam's 
economy) or through additional portfolio investment (dependent 
completely on a global economic recovery).  Until FDI figures 
show a major improvement, most analysts expect the market to sit 
idle or even to fall slightly further. 
 
COMMENT 
------- 
¶6. (SBU) Some have been surprised to read that the value of Ho 
Chi Minh City's Stock Exchange had nearly doubled from February 
to June, despite the global economic crisis.  To explain this 
 
HO CHI MIN 00000552  002.2 OF 002 
 
 
surprising level of "optimism", one business leader in Ho Chi 
Minh City contrasted the current global turmoil with the 
domestic macroeconomic/inflation crisis that Vietnam faced in 
2008 saying, "give me May 2009 over May 2008 any day because 
Vietnam is much more predicable this year than last year -- now 
I can at least make rational decisions."  If portfolio investors 
are truly waiting for substantial FDI growth to reinvigorate the 
exchange, then the fortunes of the HOSE, no matter how strong 
the domestic economy, will be heavily tied to the global economy 
and its ability to overcome the downturn. 
 
¶7. (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX