The local stock market may hit the highest level of 700 points this year given supporting news in the economy, says Nguyen Trong Nghia, research director of Thang Long Securities Co.

The outlook of the stock market will be brighter as the economic downturn is largely over in Vietnam and other parts of the world. “The nation’s gross domestic product (GDP) and credit growth are expected at 6.5% and 25% this year respectively. In the meantime, foreign investment has picked up markedly in recent times,” Nghia explained.

Domestic stock prices have dropped to attractive levels. The Hochiminh Stock Exchange has a PE (price per earnings) of 11x while the world’s average is 14 or 15. Liquidity on the market is seen improving because of new transaction regulations that allow investors to trade shares two days after the date of transaction and of the closing of gold exchanges.

In addition, Vietnam has entered into 2010 with an ideal population with two-thirds of it at working age. Economist Pham The Anh expected the local economy to recover at the end of the third quarter of 2010. Monetary policy will be more supportive of enterprises from the second quarter.

However, the market will face some challenges in the first quarter given cautious macro economic policies, inflationary pressure, fuel, higher power and water prices, and minimum-wage hikes, Anh said.

Nghia said the market was still exposing some risks this year due to the budget deficit and debt crisis in many countries. In addition, domestic firms will not benefit from the interest rate subsidy and will meet problems with the trade deficit, inflation, material price hikes and rumors.

“Besides the optimistic scenario, investors should be well-prepared for the worst scenario of the VN-Index plunging to 430 points this year,” Nghia said.

VietNamNet/SGT