dongthegreat's blog

Half year has gone with worrying business environment. However banks still report high profit for half year despite macroeconomic difficulties.

Basically banks profits are from making loans, investments, service charges, leasing etc...

Banks are still making loans to companies. But, in theory, in order to avoid insolvency or bankruptcy, banks have to set aside some money called as "provisions". According to Vietnamese Accounting Standard (VAS), Which clients, how much to make provisions largely depend on the clients' past debt-payment history. The VAS does not take into consideration the company potential/future performance. It means that a company, which is going to face a huge difficuty in operation in the near future but still manages to pay all the principals and interests, will still be put into "good condition" category.

However, the International Accounting Standard (IAS) requires banks to evaluate their clients and make provisions based on both the past performance and the future prospect. That's why the provision amount according to IAS is always higher than VAS.

So at difficult times, banks still making loans, still classifying clients into "good" category when, in fact, they should be in "bad" or at least "noticable" ones.

Abt income from service charges. There has been too much talking abt additional unreasonable charge without much prior notice to the customers. (ACB as the case as they charge extra fees when making currency exchange). Profit is the prime target, but it should be reasonable and acceptable.

Abt making investment, again, a question is being raised: "whether banks are making the right amount of provision for their investments" (high provision would mean financial safety for the bank but reduce profit). And are these investments being evaluated rightly ?

ACB will probably top the "making profits" competition between banks. But recently they are so notorious for "frauds" at their gold exchange, extra fees ...

And remember the half year figures coming out without an auditor's certification.

We already had 3 consecutive days of market recovery. At least this helps ease the burden of depression on the stock market. Many investors are opening trading acc at securities companies, expecting the market would keep going up on a permanent basis. But they should be very careful as there is not yet any solid foundation for a longterm rebounce.

The market recovers when the macroeconomy is still unstable with high interest rate, volatile exchange rate and the pressing inflation. Not many, even the experts, could understand why amid these concerns, the market has still made slight increase.

Institutional investors are taking into consideration what factors are really standing behind the recent increase. And they are nervous of a coming bull trap.

There are a few reasons worth noticing:
(1) we are heading into the 3rd quarter of the year which is always "notorious" as "the worst performing period of the year" for almost every companies.
(2) the demand force is not strong, therefore affecting the inflows of capital to support the market
(3) there is a decrease in the supply factor
(4) the net trading volume by foreign investors is negative
(5) the external factors supporting a permanent increase is still "somewhere on earth".

Personally I think we will not see a strong recovery of the market until year 2009 when we can make sure the Gov efforts to tackle inflation provide some efficiency and the business sector does not suffer casualties from the volatile operating environments.

For detailed look at this link.
market recovery or a bull trap awaiting ?

VN index ended 31 August 2007 with several points higher than the previous trading day. Investors hoped this was a "sign" of a recovery though the increase was slight.

And in this sensitive moment the Gov has officially approved the Draft for VCB IPO.

HSBC also issued a long-expected report, this time in line with hopes for a bounceback.

Domestic expectations come amid the White House and FED commitments to deter the crisis in the US housing market from setting in.

But some people who might be realistic (not over-optimistic huh ?) said the increase was due to the National holidays coming ahead and in addition was just a "temporary reaction" to the HSBC report issued 28 August.

And not until the market proves to be "clearer and more predictable", most investors will not dump their whole money into the net. Hence the market may fluctuate around 900 and we may not see any "drastic change", at least in 1 month time, I suppose.

Anyway I'm looking for the HSBC August 28 report. Smb help me ...

Recently I've read in some VN newspapers an article name like this blog title. It warns the VN stock market is experiencing its worst since the second half of year 2006. And once again this kind of report is released by a wellknown international financial institution : Merrill Lynch.

I do not have the original report (so anyone here have it please share to others via here ^^)

This is not the first time int' financial institutions made their suggestions on the trend of the VN stock market and provided some "advices" to investors.

Though some would not agree totally with those reports (largely because the "notorious and dubious" HSBC reports recently), I think we would consider:

- P/E is so high. Though P/E is not the only one that counts when considering investment indexes, the P/E average of the market of above 30 is relatively high compared with other markets. This is due to : (1) Overestimate and overevaluate by the individual investors. (2) Companies are issuing new stocks in a "careless" manner. They only take into account of how much they will raise after the issuance, but not of whether it could lead to a decline in the P/E.
The high P/E also helps explain why the EPS (Earnings per share) in Vietnam is relatively low compared with other markets. 'Cause company are ALL choosing SHARE ISSUANCE as first priority instead of BANK LOAN. (with an unchanged capability to make profit while the equity capital keeps raising, the result of a decreasing EPS is obvious)

- Most companies listed on the stock market now are restructuring their portfolios: expanding into sectors like real estate investment. Again, real estate is a longterm investment in which the companies will not see their capital return for the next 2 - 3 years until the constructions complete. ---> In short term, 1 to 2 years, the share price mustnt be as high.

- The VN stock market, I think, has now been more "organized" than previous 1 year. With individual investors now more aware of the win-loss of the market and more and more billiondollar funds have stepped into the market, it's now moving in a more easily predictable way. (Institutional investors have always been thinking that share price is too high)

- The VN stockmaket has never had the "routine" of considering Gross economy status. But now, Inflation has gone far beyond the Gov expectations, and the contractionary monetary policies from the SBV are factors that can impose a heavy negative influence on the Market.

- Those kind of reports, more or less, have effects on investors sentiments - in a downward way.

I strongly expect the market to keep falling to an "acceptable" price. Perhaps P/E 20- 25, in my opinion, is fine.

But the invest prospect in Vietnam is still bright, not gloomy. Billion dollars r waiting to flow into the market. So for medium term, demand would raise significantly, and the market, in turn, would soon recover ^^.