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Cablegate: Vietnam Stock Market Drops On Global Financial Turmoil

VZCZCXRO5062
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1171 2881003
ZNR UUUUU ZZH
P 141003Z OCT 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8603
INFO RUEHHM/AMCONSUL HO CHI MINH 5212
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/CDR USPACOM HONOLULU HI

UNCLAS HANOI 001171

SENSITIVE
SIPDIS

STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE

E.O. 12958: N/A
TAGS: ECON PGOV EAID VM
SUBJECT: Vietnam Stock Market Drops on Global Financial Turmoil

REF: A) Hanoi 1158
B) Hanoi 388

1. (U) The psychology of a global financial downturn has Vietnam's
stock market giving back gains made since it bottomed out in May,
when the country's domestic macroeconomic problems reached a height.
As noted in reftel A, Vietnam's stock market had a bumpy ride over
the past week and a half. On October 6, the market closed at 433
and kept falling for the whole week, down to 379 on October 10 for a
total drop of 12.5 percent. On Monday, Oct. 13, it made a slightly
better showing, dropping only 1.9 percent to 371, but still very
close to the lows earlier in 2008 (reftel B). It recovered some of
this loss with the rest of the Asian markets on Oct. 14, jumping up
4.7 percent to 389 but still below the psychological benchmark of
400. Foreign investors have been selling more than buying in the
last week, but only account for about 20 percent of trading volume
according to the State Securities Commission (SSC). The local bond
market is also shaky. The SSC said that foreign banks are unloading
Vietnamese bonds and the state-owned Vietnam Development Bank (BIDV)
had an unsuccessful bond auction on Friday, October 10.

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2. (U) GVN attitudes seem to be a reaction to what the market has
done the day before. At the beginning of last week, the SSC told
Post that it was not troubled by the global financial turmoil and
that they expected recovery within three or four days (reftel A).
By the end of last week, the Chairman of the SSC, Vu Bang, publicly
floated the idea of market intervention via the State Capital
Investment Corporation (SCIC) and a possible narrowing of the
trading band around share prices. Both ideas have been tried in the
past with questionable success (reftel B).

3. (SBU) By October 14th, after one day of increased share prices,
the SSC seems to be taking a more measured approach. Nguyen Son,
the Director General of Market Development at the SSC, tells us that
they are "monitoring the market closely to have appropriate and
timely responses." He added that the SSC thinks that recent declines
in the Vietnamese stock market were mainly due to "psychological
impacts" of the financial turmoil in the U.S. Currently, Son says,
the SSC does not think it is necessary to take measures such as SCIC
intervention, narrowing the trading band, or closing the market for
a "cooling off" period. He caveats that if the market continues to
fall to very low levels, they will consider "appropriate actions."
He did not define how low the market would have to fall before such
intervention would be necessary. Like many others in Vietnam, Son
feels the Vietnamese stock market will improve when the U.S. economy
recovers.

4. (U) Post will continue to follow these issues and report septel.
This cable was coordinated with Con Gen HCMC.

MICHALAK

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