The stock market plunged to a six-month low, the official foreign exchange rate in many local banks peaked at over VND21,000 a dollar, and people rushed to gold shops for bullion after the spread of a rumor about the arrest of Tran Bac Ha, chairman of the Vietnam Bank for Investment and Development’s (BIDV) board of directors.

Ha has officially denied this rumor.

Ha told Tuoi Tre that the rumor may be part of a trick carried out by a group of stock investors and financial speculators who might have earned hundreds of billions of dong just by setting it up (VND100 billion = $4.8 million).

“There was rumor about the arrest of a senior state official on Thursday morning, then the arrest of a head of a BIDV branch and a BIDV deputy director in the afternoon, and finally it was about me,” Ha said.

The bank’s board held a meeting late Thursday afternoon on how to deal with the rumors and report to the Government and local authorities to propose an intervention in the issue.

"Obviously those who set it up are trying to undermine the market and affect national monetary security.”

"The false information not only affects my personal and BIDV’s reputation, but also affects other people and destabilizes the local financial market, so we have asked the Ministry of Public Security to help in searching for those behind this,” he added.

On Thursday night Tuoi Tre talked to Trinh Van Thong, Deputy General Director of General Security Department No.2 under the Ministry of Public Security, who said an investigation into the case has been launched.

Thong said initial information showed signs of profiteering, seriously impacting the country’s financial market.

In a notice posted the website of the State Bank of Vietnam (SBV) on Friday morning, the bank said it is working with the Ministry of Public Security to clarify the source of the rumor to coordinate with ministries, its branches and local People's Committees to take appropriate measures to strictly handle such illegal business, especially those in the black market.

“The people and businesses need to be cautious and alert before rumors spread to avoid unnecessary damage,” SBV said.

Sour aftermath

The banking and financial markets, which are tense due to a stagnant credit flow after the Lunar New Year holiday, became even more volatile with the spread of the rumor.

The foreign exchange rate between the Vietnam dong and US dollar, after slowing down in the morning, suddenly regained its momentum in the afternoon to surge to over VND21,000 a dollar at many big banks, startling the public and traders on the black market.

At 4 pm, the dollar price at banks increased by VND60-70 a dollar compared to the morning.

At 4:20 pm, BIDV raised the price of the greenback to its the ceiling at VND21,036 per dollar before falling to VND21,000 per dollar at the end of the day.

Many banks, including Vietcombank and ACB, also raised the price to the VND21,000 mark. At Eximbank, the USD price at the end of the day was VND20,990 per dollar.

With around $30 billion in foreign exchange reserves, the State Bank of Vietnam is capable of intervening in case of volatility, SBV vice governor Le Minh Hung told newswire Vneconomy late Thursday evening. Local commercial banks will boost sales of foreign currency on Friday, he added.

Regarding speculation about a devaluation of the dong, Hung told VnEconomy that this is also a rumor, adding that SBV is working with authorities to determine its source as well as coordinate with police in strengthening the supervision of illegal foreign currency trading on the free market.

Local gold prices yesterday continued to soar after the sudden rise in demand in Hanoi and Ho Chi Minh City, widening the gap between the local and international price to some VND5 million a tael. The local gold price has recently been VND4-4.5 million a tael higher than its world counterpart.

SJC gold prices fell sharply in the morning but began to accelerate in the afternoon when the demand for gold and gold prices edged up.

By the end of the day the selling SJC gold price had reached VND44.9 million per tael, an increase of VND250,000 compared to the morning. The domestic gold price is now VND5.15 million a tael higher than the world price.

Nguyen Cong Tuong, deputy director of the SJC sales department, said the company sold about 800 taels of gold bullion on Thursday, the same amount it had sold the previous day. (1 tael = 1.2 ounces)

The most severely affected financial sector was the stock market, with the Hanoi and HCMC indexes, HNX-Index and VN-Index, respectively, in a freefall.

The VN-Index saw the sharpest decline since the one following the arrest of financial mogul Nguyen Duc Kien on August 23, 2012.

By the end of the session, the VN-Index lost 18.1 points, or 3.66 percent, falling to 476.73 points, while the HNX-Index fell 5.3 percent, the most in six months. Many investors are concerned this will continue into the Friday session.

Also during this session, rumors of a high CPI rise in February, and an increase in the price of gasoline arose.

According to the Ho Chi Minh Stock Exchange (HoSE), VND28.9 trillion in capitalization evaporated, falling to VND780.1 trillion, a decrease of 3.57 percent.

On the Hanoi bourse, HNX capitalization fell 4.83 percent to VND95.96 trillion, equivalent to a VND4.87 trillion loss.

Thus, Vietnam's stock market had lost nearly VND33.8 trillion, or more than $1.6 billion, in capitalization by the end of Thursday.

However, liquidity on both floors rose with increased transaction values despite the rumors.

"This is a sign that the rumors are deliberately being spread for speculation," Ha said.

Huynh Anh Tuan, general director of SJC Securities, said reaction from the market is very fast after such rumors appear, as many investors remain cautious as many businesses have just reported large losses in Q4 and 2012.

On the other hand, the recent trading size of the market has been huge, as investors used financial leverage, thus making them rush to sell.

"I think there is a group of investors who know the weaknesses of the market, so they planned ahead and then took action. The current stock price fluctuation has been expanded, thus increasing losses for small investors,” Tuan added.

Tuoi Tre News - February 22, 2013