Bottlenecks to Stock and Property Markets

The stock and real estate markets have been effective channels to attract huge amounts of investment capital from society. However, these two markets have undergone steep declines so far in 2011. To address problems which have left investors with their capital ‘trapped,’ the Prime Minister has ordered concerned ministries and other central authorities to seek solutions to stabilise the real estate and stock markets.

Accordingly, the Prime Minister requested the Ministry of Construction and the Ministry of Finance to coordinate with the State Bank of Vietnam in June 2011 to analyse and assess market situations and solutions to spur the development of these two markets.

 

The stock market has been on the decline since the start of 2011. Continued declines have fuelled concern that the market is a “wrong indicator or wrong state.” But given macroeconomic data, the losing trend is explicable as interest rates are too high. Worse, tightened credit policy is inhibiting cash from flowing into this market. Besides, rising prices of electricity, coal and gasoline are denting corporate earnings.

However, according to some economic experts, this tumble is bound to happen because the market lacks strict management, leading to vulnerability of credit for the market. Many institutional and individual investors use financial leverage to trade stocks.

 

Besides, there are so many securities companies and trading floors in Vietnam where the stock market is reportedly still at a fledgling stage. Companies scramble to list shares on the stock market while listed companies usually issue additional shares for their shareholders, leading to a strong dilution of shares. With hosts of shortcomings, stock investment capital is subject to high risks. These elements are behind the unstable development of the stock market.

 

The real estate market has gone through a period similar to what is happening on the stock market. Investors and speculators used to invest and take the highest ratio of return among all investment channels, and greed for quick profit caused overheated growth and fraudulent behaviour. Real estate companies used all their resources to invest in the property market and tried to push the real estate price far from its real value. Many investors were swindled into buying misrepresented assets. When management policies and monetary policies are tightened, threats become risks. Projects invested by incapable investors face the risk of bankruptcy, while speculators suffered huge losses as prices plunged.

 

Both stock market and property market are seriously affected by fiscal and monetary policies. Therefore, the market that develops on an unstable foundation is the ground for economic specialists to brand so-called “investors” of stock and real estate as “speculators.”

 

An economic specialist pointed out that stock investors and speculators are using financial leverage from various credit sources, like stock brokers or black sources. If the market goes up, they will earn huge profits which reportedly multiply their principal. But when the market slides as is happening, risks are multiple. This money is not the savings of investors, but loans from credit providers. At this point of time, credit providers are also subject to risks. This results from lax financial, monetary and credit management by banks, securities companies and stock exchanges.

 

On the real estate market, speculation is also rampant. Futures dealings are very popular. An official from a real estate trading floor said many investors lost their deposits because they could not find financial sources to continue their investments. Loose management has given rise to underground transactions and off-floor transactions, which increase risks against investors/speculators.

 

The “ulcers” of the market are rooted from unreal value and wasteful investment practices, according economic experts. Therefore, tightened monetary policy on the property market is essential, as it is the basis to bring real estate back to its intrinsic value.