Vietnam Stocks Fall Most in Asia

Asia Commercial Bank CEO Ly Xuan Hai
Ly Xuan Hai, president and chief executive officer of Asia Commercial Bank. Photographer: Paul Hilton/Bloomberg

Vietnamese stocks approached a bear market this week as the detention of a banking tycoon sparked concern more arrests will disrupt the nation’s financial system.

The VN Index rose 1.8 percent at close in Ho Chi Minh City, following a three-day, 10 percent tumble. The gauge has fallen 18 percent from its high this year on May 8, near the 20 percent decline some investors regard as a bear market. The measure traded for 9.5 times estimated profit yesterday, the cheapest level since May 25 and lower than the MSCI Emerging Markets Index’s 10.5 multiple, data compiled by Bloomberg show.

Asia Commercial Bank tumbled 19 percent the previous three days after Nguyen Duc Kien, one of its founders, was arrested Aug. 20 for what the central bank called conducting “business illegally.” Vietnamese police said today they had arrested Asia Commercial’s former Chief Executive Officer Ly Xuan Hai. The benchmark money-market rate climbed to a four-month high amid concern about a cash crunch.

“Not every stock in Vietnam by any means is going to be implicated or involved in any way in this, so there’s an opportunity for brave investors to take advantage of some very cheap valuations,” Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management, which manages about $100 million, said by phone. “If we get some definitive news on what’s going on, that may provide a respite. But if there are more arrests, then there will be more weakness.”

Slumping Valuations

Asia Commercial shares gained 3.8 percent today in Hanoi. The stock’s three-day slump dragged its valuation lower yesterday to 6.1 times estimated profit, the lowest level since January, according to data compiled by Bloomberg.

Fitch Ratings placed the bank on rating watch negative, it said in a statement today after market close. The lender’s long-and short-term issuer default ratings may be cut if there are sustained weakening in the bank’s liquidity and reputation, according to the statement.

The lender’s former CEO Hai will be detained for four months from Aug. 23 while police investigate him for allegedly “intentionally violating state regulations on economic management, causing serious consequences,” according to a police statement on the government’s website today.

Hai was not reachable on his mobile phone. Asia Commercial appointed one of Hai’s former deputies, Do Minh Toan, as CEO late yesterday after accepting Hai’s resignation, according to an e-mailed statement from the lender.

Deputy CEO Nguyen Thanh Toai declined to comment on reports of Hai’s arrest and the police investigation when contacted on his mobile phone today. Some Asia Commercial branches faced crowds of customers wanting to withdraw funds in recent days, though their numbers had eased, Toai said when contacted by phone yesterday.

“Our situation is stabilizing,” he said. “We have mobilized enough funds to meet demand.”

Bank Stocks

The lender borrowed about 7 trillion dong ($335 million) from the central bank in open-market operations on Aug. 22 to “calm” depositors and sought to withdraw 36 trillion dong of loans from the interbank market to ensure it can cover its liabilities, according Deputy CEO Toai.

Joint Stock Commercial Bank for Foreign Trade of Vietnam, the nation’s biggest lender by market value, climbed 4 percent today after sinking 12 percent the past three days. Vietnam Joint-Stock Commercial Bank for Industry and Trade, the second largest, gained 4.1 percent after a 9.2 percent slump. Saigon Thuong Tin Commercial Joint-Stock Bank, known as Sacombank, added 2 percent after tumbling 14 percent.

PXP’s Snowball said he bought stocks yesterday, declining to be specific. Consumer staple and agricultural companies “look pretty good,” he said. Vietnam Dairy Products Joint-Stock Co., the nation’s biggest listed dairy producer, accounts for 8.2 percent of his $34.4 million Vietnam Emerging Equity Fund. The stock rose 2 percent today after a 4.7 percent slump yesterday dragged its valuation to 11.6 times estimated profit, the lowest level since Aug. 8.

Foreign Purchases

Overseas investors bought a net $15 million of Vietnamese equities in the past four days, headed for the biggest weekly purchases since the week to March 30, Ho Chi Minh City exchange data show. Tran Dac Sinh, the bourse’s chairman, was not reachable on his mobile phone.

“Even though stock prices have fallen, liquidity in the market has increased significantly,” the Hanoi Stock Exchange said in an e-mailed statement yesterday. Foreign investors are “not affected by psychology and took the chance to buy stock at low prices,” according to the statement.

More than half the VN Index’s 303 companies fell at least 4 percent yesterday. The State Securities Commission urged investors to stay calm, saying it will intensify monitoring and “strictly deal” with investors who spread rumors, according to a statement on the regulator’s website yesterday.

Hoarding Cash

“The Vietnam issue is more about confidence than market valuations,” said Gavin Parry, managing director of Hong Kong-based Parry International Trading Ltd. “The high probability of more high-profile banking arrests is creating uncertainty for the banking system. The central bank has stepped in to assure it will cover its liabilities.”

The nation’s benchmark money-market rate has more than doubled in the past week on concern banks will hoard cash to meet customer withdrawals. The overnight interbank deposit rate gained 20 basis points, or 0.2 percentage point, today to a four-month high of 6.80 percent, according to data from banks compiled by Bloomberg. A 198 basis-point jump on Aug. 22 was the biggest since December 2010.

State Bank of Vietnam injected 13 trillion dong into the financial system through open-market operations on Aug. 22, the most over a seven-day period this year. Governor Nguyen Van Binh said Aug. 21 the monetary authority stands ready to ensure banks have adequate cash after Kien’s detention.

Political Rivalry

“Although the central bank has been supplying quite a lot of liquidity to open market operations over the last couple of days, interbank rates have risen quite sharply,” Fiachra MacCana, managing director of brokerage Ho Chi Minh City Securities Corp., said by phone yesterday. “This appears to have reduced liquidity, especially for some smaller banks.”

Prime Minister Nguyen Tan Dung’s government is seeking to shore up a banking system saddled with the highest bad debt in Southeast Asia that credit-rating companies cite as a threat to the economy. The arrest of Kien, who has links to the prime minister, may also be related to Dung’s rivalry with President Truong Tan Sang for power within the Communist Party ranks, Steve Norris, a Singapore-based analyst at Control Risks Group, said this week.

Dung was reappointed to a five-year term last year. Sang formerly headed the Central Committee’s central economic commission before he was appointed as president last year, one of the country’s top three leadership positions.

Vietnam’s stock exchange in Ho Chi Minh City started trading in 2000 with shares of four companies that began as state-controlled businesses. The first private company was listed four years later and a second bourse in Hanoi opened in 2005. The two exchanges now have about 700 stocks.

— With assistance by Shikhar Balwani, and Nicholas Heath

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