Vietnam Stock Market: Drying Liquidity

Cash has never run out as this year given what is happening on the stock market. Since the beginning of the year, the market was only on the go in late March and early April when the daily trading value amounted to VND3,000 - 4,000 billion while the remaining time of the year was very lacklustre. In many recent weeks, the daily traded value on both the Hochiminh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) was just marginally higher than one-tenth of the peak time in the year.

 

More than HOSE-listed companies have share market price of below VND5,000, even some at VND2,000, compared with the par value of VND10,000 per share. HNX also has many companies with share price below the par value.

 

The financial industry has sunk most. Except for moribund securities companies with share value of less than VND1,000, the share price of Sacombank Securities Joint Stock Company (SBS) is being traded around VND1,500 per share. SBS shares had been traded at floor prices in nearly 15 consecutive days (floor price is capped at 5 per cent a day from the reference price on HOSE and 7 per cent on HNX.)

 

That more and more companies are being placed under special supervision or forced to delist shares is undermining the confidence of investors. Earlier, the illegal abuse of shares of investors on account and loss of liquidity also weakened the investor belief. Financial and bank shares are dropping its weight in the eyes of investors.

 

Real estate companies are also shrugged off by investors. Many stocks are hovering at very low prices, far below the par value, and their liquidity is almost frozen. Investors are also concerned about falsified financial data, major shareholders’ divestitures, rising inventories, and unfocused investments by property companies, banks and financial companies, even in well-known and well-established ones.

 

At present, the HNX-Index is in the region of all-time low while the VN-Index is also on the downward spiral in the past months. However, low values fail to arouse the greed of investors. For the time being, stock trading floors are almost empty. The stock exchange has seriously dropped the trust of investors.

 

Meagre trading with a daily value of VND300 billion showed that the unpleasant fact that investors have run out of money. On the market, the only true fact is loss. The matter is how much loss they suffer. Share prices are now ridiculously cheap but they are believed to be cheaper in the future. For that reason, there is no need to take risks in a volatile market.

 

Confidence decline is attributed to the quality of goods. A series of companies, both small and big, announce huge losses in their financial statements. But, another difficulty is weighing on the stock market: The scarcity and depletion of cash flows.

 

While many solutions that might have had positive impacts on cash flows for the stock market have been adopted like enterprise bailout and real estate market rescue by means of interest rate reduction, credit boost, tax break, increased public investment, and home loans, many believed that the money would quickly return to the stock market. But, the reality is distant from expectations. Market and stock performances are showing signs of deterioration.

 

Many investors who are being trapped because of treading wrong waves stirred by “big sharks” are struggling to survive. Former market drivers like banks, securities, investment funds, State-owned enterprises, and capital corporations are being fraught with bad debts and being under heavy pressure of restructuring. Common aim of many “big sharks” is to exit the market as quickly and silently as possible. Once companies cannot overcome their difficulties, their investments in other markets such as securities or real estate or policies in support of catching the money flows into the stock market is perhaps hardly feasible.

 

So, what can prop up the market recovery?

 

When the VN-Index broke through the yearly low of 383 points, investors still shunned shares because of potential risks and no momentums for the return of cash flows.

 

Now, all eyes are turning on market makers, market regulators, and authorities, waiting for effective solutions to boost transparency, improve the quality of goods and bolster investor supports.

 

Fairly speaking, the SSC also has taken actions but it is apparently not enough to affect the market. Perhaps, the stock market is now very much waiting for new bailout policies.

 

In the fourth meeting session of the 13^th National Assembly, Deputy Prime Minister Nguyen Xuan Phuc said the Government is considering a scheme on restructuring of the stock market, expected to be completed in 2015. In an interview granted to Dau Tu Chung Khoan Magazine (Securities Investment Review), SSC Chairman Vu Bang said the Ministry of Finance and the SSC are considering several solutions to the stock market in 2013.

 

This means that investors will have to wait for solutions next year.

 

If policies are strong enough to impact the market, there is no worry about the return of cash flows. It is undeniable that while most investment channels are less attractive like frozen property investment, discouraged gold hoarding and reduced deposit rates, the stock is still catching more interest.

 

In the short term, investors remain pessimistic about the market trend. According to Maybank Kim Eng Securities (MBKE), there are now no signs and momentums for reversing the trend. This is a reason for investors to keep a wait and see attitude to the stock market.