Gold, stocks and real estate to lose luster this year

The three major investment avenues of gold, real estate and the stock market do not represent highly attractive options this year, experts say.

Economist Le Dat Chi of the Ho Chi Minh City Economics University said as the economic recovery has begun and many currencies, especially the US dollar, are getting stronger, the demand for gold as a hedge asset will decrease.

Although the price of gold remains high, a further increase is unlikely, he said

The recent announcement of the International Monetary Fund to sell 193.1 tons of gold on the open market has kept the metal from surging, denting investor confidence, Chi said.

Economist Dinh The Hien said with the closure of all domestic gold trading floors only a few weeks away, the precious metal is no longer a good investment choice this year.

Investors used to favor trading at gold exchanges as they were able to leverage themselves easily using loans, he said.

But this year they will have to switch to physical gold, which means they will need a large investment upfront, Hien said.

Gold investors usually make a down payment of around 7 percent and then trade on credit. But since the government announced in late December that the country’s 20 gold trading floors must close by March 30, banks have also halted lending for gold investments.

Hien said the price of gold is more likely to decline than increase further this year. So if investors want to secure their capital investment, it’s better for them to put money into dong deposits offering high interest rates of up to 10.5 percent a year, he said.

The price of gold in Vietnam hit a record high of VND29 million (US$1,587) per tael, or 37.5 grams, in November. Prices surged by 50 percent over the course of 2009.

But not all experts think gold has lost its glitter for local investors.

Tran Thanh Hai, general director of HCMC-based Vietnam Gold Business, said it’s less risky to invest in gold in Vietnam than in other countries.

While gold and the dollar usually move in opposite directions elsewhere, they often go together in Vietnam, he said.

The dollar gained 5.4 percent against the dong last year. The central bank devalued the dong by more than 3 percent on February 10, the second devaluation since November, to control the trade deficit and stabilize the economy.

Experts said although it’s hard to predict by how much the dong would fall further this year, a decline of at least 2 percent in the next ten months is foreseeable.

The dong traded at 19,080 per dollar as of 9:15 a.m. on Thursday in Hanoi versus 19,013 the previous trading day, according to data compiled by Bloomberg. On the black market, the dong dropped to 19,450 at money changers, according to a telephone directory information service, known as 1080, run by state-owned Vietnam Posts & Telecommunications.

Real estate

Hien said real estate would remain depressed this year and investors may find it less attractive than other investment options.

The government is focusing on providing credit to the manufacturing sector to boost economic growth. As a result, the real estate sector would continue to face capital problems in at least the first two quarters and a recovery is not likely to happen, he said.

Vietnam aims to limit growth in both credit and money supply this year to control inflation. The government has set a 28 percent growth target for money supply this year and a credit growth target of 25 percent, down from 37.7 percent in 2009.

Hien said with many existing property projects well under way, supply will increase soon, making it even harder for the market to bounce back.

But many long-term investors disagree, saying it could be the right time now to start putting money on real estate and wait for prices to surge at the end of the year. Improved public infrastructure would add more value to properties later, they said.

Truong Thanh Nhan, general director of property developer Van Phat Hung Corp., said land in District 7 has become “golden” thanks to its better road system. Prices at some projects in the district have increased by 10-20 percent in just two months, he noted.

Stock market

The VN-Index, Vietnam’s major stock index, rose 57 percent last year, rebounding from a 66 percent slump in 2008. After such a huge leap amid the economic downturn, many investors expect even a bigger gain this year on the stock market.

But Hien said chances are slim that the index can gain a further 40- 50 percent by the end of this year. The gauge started in 2009 at only 234 points, but now it has been around 500 points already, he said.

He felt it could only go up by around 20 percent.

The VN-Index on the Ho Chi Minh Stock Exchange on Thursday rose 0.08 percent to close at 494.99.

Chi said although there are opportunities for both short-term and long-term stock investors, profits should not be expected in just one or two weeks.

Unlike real estate investors who often wait for between one or two years to start selling, stock investors are often impatient and do not want to keep their falling stocks, Chi said.

Economist Le Tham Duong of the HCMC Banking University said all investments have risks and opportunities, but compared to gold and dollars, stocks are the better option as the stock market is less susceptible to polices and global markets.

A problem for stock investors this year is to decide which stocks they should invest in. Experts said blue chip and banking stocks used to be the first choice but they think 2010 could be a year for small stocks.

Phan Duc Trung, CEO of FPT Capital, said investors should choose companies with good performance, instead of just looking at large companies with huge resources.

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Posted by VBN on Mar 3 2010. Filed under Economy News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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