VNStockNews.com - Viet Capital Securities Co. (VCSC) believed the increase in price of heavyweights like BVH, VIC, and MSN did play roles in supporting the market in a critical trading day like yesterday, the broker wrote in a note to its clients. The following is VCSC's note emailed to clients:
The VNIndex did find support today when approaching its three month low. But contrary to the common expectation that the Index would drop following the increase in petrol price, it managed to close above 460 (+.47%), which surprised us to some extent. One possible explanation was that the increase in petrol price might have been well forecast by the market, as the pre-adjusted retail price had stayed 10% below imported price for a while. And the hike in world oil price might have already been factored some way into CPI model of many economists, whether it had already materialized domestically or not, in our view.
Having said that, we believe increase in price of heavyweights like BVH, VIC, and MSN did play roles in supporting the market today.
Domestic prop desks turned net buyers in the matching session, net buying over VND2.7bn. Foreign investors remained net buyers for the fourth day, with net worth of VND57bn bought in HSX. Their favorite picks today included familiar big cap names like BVH, DPM, and VCB. The strong bid volume from foreign investors somehow supports market sentiment in a critical trading day like today. In retrospect, we have seen strong buying forces from foreigners on numerous occasions which served to calm down the market and prevent the Index from falling below important technical support levels.
The sideways movements of the Index in small band and the support of foreign investors indicate that the market is probably coming back to a consolidation stage in preparation for an uptrend in medium term. If this is the case, the VNIndex might continue its rhythm of swinging between 460 and 475 for a while. Otherwise, the downside risks are now much limited by the two strong supports just within 3% to the south, including the three week low at 457 and the three month low at 450.
The effect of petrol prices hike on CPI
Facts: Ministry of Finance raised petrol prices by 10-15% on March 2011, following a recent adjustment which was applied for more than one month ago. In details, A92 petrol price rose 10% to VND21,300/litre while diesel prices was up by 15,3% to 21,100.
Comments: Recent petrol prices hike was somehow at market expectation as the selling petrol prices previously had been 10-15% lower compared to the imported prices. Besides, the petrol stabilization fund has run out of money and petrol import tax is currently applied at 0%. In our opinion, the recent move is a right move in an attempt to implement the roadmap towards market mechanisms. The government does not want to subsidize further to petrol importers given little room remained for budget deficits.
Impact on CPI: In our calculation, a 10-15% increase in petrol could directly add 0.36% to CPI, mostly into the number of April and the rest into that of May. We expect, however, that indirect impact will potentially be larger but it may take some time to factor in.
April CPI outlook: Despite of recent petrol adjustment, we maintain our forecast that April CPI could be lower than March figure MoM. We forecast April CPI register at 1.1-1.2% MoM cf. 2.17% in March. Accordingly, April CPI could go up by 15% YoY, reaching a new peak of current cycle while YTD CPI could reach 7.3-7.4%, higher than the whole year target of 7% for 2011.
In our opinion, the current calming down in foreign exchange market, tightening conditions and lower steel prices could partially slow April CPI down. However, April CPI is also driven by a combination of the effect of recent petrol prices hike dated March 29, the recent increase in meat prices resulting from the cattle’s diseases, and cold weather in the North as well. In addition, the electricity price hike in early March and the previous petrol price lift will continue to put indirect pressure on April CPI.
In the forex market, we saw the VND strengthening in both the interbank and grey market. The dong gained 60 VND cf. Tuesday to reach VND21,100/USD at mid-day in the grey market. In the interbank market, the VND/USD exchange rate was quoted at VND21,015/USD mid-day, down 5 dong cf. Tuesday. In the money market, the O/N rates traded within 16-19% pa at local banks cf. 21% pa on Tuesday, thanks simply to month-end effect. That is, many banks have accumulated enough dong for reserves.
