Rescuing Securities

The stock market has been on the downtrend for the past one year, dragging the VN-Index down from 550 points to below 400 points and the erasing 60 percent of the HNX-Index. In recent months, the liquidity has waned as market sentiment was weak. It is even very difficult for them to exit the market.

 

For more than a year, the stock market saw snap rallies but prolonged declines, hence, most investors suffered losses and their asset value has gradually eroded. Unfortunately, there is a little hope of recovery.

 

The stock market has slumped because the macro economy is volatile, consumer prices surge, inflation accelerates, interest rates go up, and liquidity drains while gold prices rocket worldwide - a contrary look to the real estate market. In the meantime, the market is driven by some investors with good financial, information and relation advantages, share market values are distorted, while authorities are late at dealing with bad behaviours on the market. These negative impacts eroded the investor confidence and worsen their pessimism.

 

Not only retail investors, securities companies and investment funds also incurred heavy losses. As many as 62 securities companies reported losses in the first half of this year while 27 out of 47 fund management companies suffered losses. Macroeconomic situation is unstable while inflation is reportedly the highest in the region. Putting inflation and growth on scale, investors lost 7 percent each year on value erosion.

 

Besides, high discount rate in foreign-led investment funds inhibited them from raising foreign finances for extra investments. If there is no major change in this situation, investors may withdraw their money from foreign investment funds.

 

In a recent press conference, a leader from Dragon Capital reaffirmed that the fund pledged long-term investment in Vietnam although but officially sold out 61.1 million shares of Sacombank (STB) on August 4.

 

The Ministry of Finance has issued the Circular 74 with many regulations on long-awaited permissions but it also failed to prop up the weak market. The market needs a strong foundation to climb up and this will catch the direction of cash flows. The current market needs a strong boost to the market sentiment; otherwise, investors will still stay on the sideline to wait for a clearer development although valuations are very low. If investors, both Vietnamese and foreigners, do not see a good return on stock market, they will not open their wallet for shares. Then, the market prospect will be very dull. The worst loss is the economy will lose an important fundraising channel and companies will not find a good capital source for development.

 

The State Securities Commission of Vietnam (SSC) and the National Financial Supervisory Commission proposed some measures to support the stock market, particularly the State will halt divesting in State-owned companies. The move will help reduce the market supply and shore up the investor sentiment.

 

When the stock market was at its prime time before 2007, many large-scaled State-owned corporations invested in non-core businesses, particularly in finance, securities and real estate. Before this reality, the Government ordered them to reduce investment in non-core business from 30 percent of owner’s equity to 15 percent.

Many companies hardly cut holdings in non-core companies because of declining stock market and freezing real estate market. Vinaconex is seeking partners to transfer millions of shares in its affiliates. Vietnam Posts and Telecommunications Group (VNPT) plans to transfer holdings in many unlisted companies like SPT, Maritime Bank, Nhon Trach 2 Thermal Power Plant as well as listed firms like SAM, POT, TST, VTC and PTI. The first move is to transfer all share purchase rights at Maritime Bank.

 

These are just two typical examples out of dozens of giant State-owned enterprises. Besides, the supply will mount when some SOEs will go public in the near future. Recently, many companies have failed to sell their stakes to the public.

 

A halt in divestiture will help reduce the supply on the market and balance the supply and demand. This move will help the State to sell assets at low prices when the market is not very good. Moreover, a lot of investors think that the market is lack of good-quality shares but full of low-quality ones. There are many small weak-performing companies while there are too few good-performing companies on the market. On the Hanoi Stock Exchange (HNX), up to 90 percent of companies have market cap under US$50 million. The privatisation of large-scaled State-owned companies is going very slowly although they have prepared this work for years.

In a recent seminar hosted by the National Financial Supervision Commission, attendants focused on measures to prop up the stock market and create the investor confidence. They agreed that this can only be done when macroeconomic indicators are controlled, inflation is low, foreign exchange rate is stable, interest rates are reasonable among many other measures.

 

Although the stock market is shrugged off, optimistic investors believe this is a good chance to pick up shares with good fundamentals. This is also the time authorities adopt policies in service of healthy market development. The stock market is dubbed the market of confidence; thus, the information publicity, transparency and reliability are very important. Once the market is believed to have good assets, cash flows will return.