It’s Time to Classify Stocks?

According to incomplete statistics, 445 companies have their shares traded below par value (VND10,000) and 144 companies are witnessing shares traded below VND5,000 shares. A lot are traded between VND2,000 and VND3,000 per share. VKP on the Hochiminh Stock Exchange (HOSE) sank to VND600 per share - the lowest in the Vietnamese stock market history.

 

If investors pick up shares with market prices below VND10,000, they contribute less to hold the same assets as initial shareholders. However, if share prices are put in relation with business results, many shares are still too expensive.

 

However, many stocks with very good fundamentals are being hit by the bearish market. Some companies have share prices traded at a quarter of book value.

 

Previously, when the market slumped steeply, it usually received leverages. For example, the State Capital Investment Corporation (SCIC) pledged to buy stocks to shore up the market. However, such supports have not appeared. All seems to turn their back on the stock market. Operations of many companies stagnated and a lot went bankrupt. Cash flows for the equity market dropped because interest rates are exorbitant and banks squeeze credits for nonmanufacturing sectors, including securities. In the meantime, a lot of investors in Vietnam primarily relied on loans and financial leverages to invest in stocks. At present, no one are enterprising enough to borrow money bearing high interest rates from banks to purchase devaluing stocks.

 

Market operators have not taken major actions to bring the market to return to the rally track.

 

Perhaps, it is now time to classify shares although this is a hurtful option. Many long-time loss-making companies still have their shares listed and traded and this is believed to make things worse. In 2009, although the situation was tough, companies’ resources had not dried as now. Many companies exhausted because of rising inputs, soaring inflation, escalating fuel prices and growing electricity prices. According to the State Securities Commission, more companies suffered loss or had declining profits. At the end of the first quarter, 60 companies reported losses but the figure jumped to 80 in the second quarter and 100 in the third quarter. Up to 60 percent listed companies reported profit slumps over the same period in 2010.

 

At present, the Ministry of Finance and the State Securities Commission cannot take any solutions to revive the stock market because of unfavourable macroeconomic data. SSC said it may propose new tax breaks for securities investors in the coming time.

 

Meanwhile, not only retail investors are leaving the market but listed companies are also considering delisting plans because the market does not have right valuation on their companies.

 

The sad story of the Vietnamese stock market remains indefinite. SSC should take active actions rather than wait for better economic data. The market size may be smaller after crossing off loss-making companies but the investor confidence will be regained - the vital factor for future sustainable development.