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Fact-based decisions needed in stock market

Released at: 16:48, 19/01/2016

Fact-based decisions needed in stock market

Mr. Nguyen Thanh Long, Deputy Chairman of the State Securities Commission (SSC), spoke with VET about the declines in the stock market seen recently.

by Hoang Xuan

What can be read into the substantial fall on Vietnam’s stock exchanges on January 18?

Stock markets around the world have been in decline since the beginning of the year. Markets in Germany and Japan are down 7 per cent while China’s has fallen 18 per cent. The US stock market has also lost 8 per cent and seen major volatility despite the fact that the country’s economic indicators are positive. These are all evidence of concerns among investors over the economic situation in emerging economies, especially China.

Movements in Vietnam’s stock market over the last couple of years show that it has become more stable than it was five years ago and a recovery has been evident since 2012. However, as markets around the world experience declines this has had an impact in Vietnam, and the continued fall in the oil price has also been a factor.

Over the last two weeks the decline on Vietnam’s stock markets has followed falls internationally, though not to the same extent. The fall on January 18, however, is a concern, and the State Securities Commission is observing the market closely.

Another point of concern is that liquidity has increased significantly. On January 18 the trading value was at VND3.01 trillion ($138.26 million), which was 30 per cent higher than in the previous session, on January 15. This indicates that there is a huge demand for buying but that investors are perhaps waiting for the market to bottom out.

What are the main reasons behind the downward trend?

We believe the main reason is pessimistic investor sentiment, which stems from negative reports about the global economic situation.

Another factor is the falling oil price, which has been exacerbated by the lifting of sanctions against Iran. This is something of a threat to enterprises in the sector.   

What solutions does SSC have to address the unusual movements in the market?

We will continue to increase our supervisory activities, in particular requiring the stock markets report daily on disbursement, margin trading, and high volume trading. The SSC will also require directors of securities companies and Vietnam Securities Depository (VSD) to report daily on trading that attempts to take advantage of the market.

The SSC will also direct securities companies to objectively analyze and provide opinions on the market each day to improve investor sentiment.

The issues in the stock market need to be carefully considered, so that they reflect the actual economic situation.

What would you recommend investors do?

Investors must avoid simply following trends. Decisions should be made based on macro-economic factors, which are considered a platform for the development of the stock exchange.

If the macro-economic situation is good there is no reason to sell quickly when the market heads downwards.

Firstly, Vietnam’s stock exchange is supported by economic bright spots. The economy is going through a period of stable growth. The Word Bank, HSBC and others have all evaluated Vietnam’s economic situation highly. The ADB has said that economic growth will be higher than planned, at 6.6 per cent in 2016. According to Bloomberg, GDP growth will be the second highest in the world in 2016, after only India.

Secondly, the free trade agreements (FTAs) Vietnam has signed will come into effect. The TPP and the AEC are expected to see more foreign capital coming into Vietnam. The TPP may help Vietnam’s exports, result in the country more deeply joining global value chains, and help the country improve its policies. Decree No. 60 on increasing foreign share ownership will continue to be implemented. And improvements in Vietnam’s market classification from MSCI are expected.

Thirdly, the process of restructuring the economy, conducting administrative reform, improving the business investment environment, and enhancing national competitiveness has achieved results and will help attract foreign investment in the future. Vietnam’s Global Competitiveness Index (GCI) reached 4.3 points, ranking it 56th out of 140 economies in this year’s World Economic Forum survey. In Southeast Asia, Vietnam has the strongest growth.

Fourthly, many new policies promote the reform of State-owned enterprises, further attracting foreign investment. For example, selling stocks in blocks will attract more strategic shareholders. The implementation of macro-economic policies recently has also been recognized by international organizations.

Fifthly, the international economic situation and China’s economy only have an indirect influence on Vietnam. According to ANZ, Vietnam is the country in the region least influenced by China.  

Sixthly, the business performance of listed companies continues to be positive, with revenue and profit estimated to have grown about 10 per cent in 2015 compared with 2014. P/E ratios in Vietnam’s stock market are also still quite low.

If the market continues to fall, will the SSC adopt stronger methods such as stopping trade or encouraging major investors to buy?

Our position is to not issue policies to drive the market. We suggest investors remain calm and make suitable investment decisions that match the actual economic situation. Investors should be cautious, avoiding unrealistic assumptions that may damage their investment.

In the long term we will continue to offer solutions to encourage a stable and strong stock market.

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