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SSC officially gives reason for adjusting daily trading band
The State Securities Commission (SSC) yesterday released the official explanation for its decision to lower the daily trading band to 2% for HASTC and 1% for HOSE.
Macroeconomic conditions prove to be favourable for the country to develop in 2008: a high economic growth rate, socio-political certainty, high foreign direct investment (FDI), and high export growth rate of 22-24%. Vietnam has been a member of the WTO for one year and witnessed high growth since then.
Other countries in the world all highly praise the achievements Vietnam has gained. The national economy is on the right track of development: the GDP growth rate in the first quarter of the year reached 7.4%, while lending interest rates are decreasing.
However, the stock market if facing some difficulties with continued stock price decreases. The VN Index and HASTC Index have been continuously decreasing since the beginning of the year, though the government and relevant ministries have been trying hard to rescue the market.
In other countries, when stock markets show signs of falling down, boards shut down automatically. However, the system still does not exist in Vietnam. Temporary trading interruptions prove to be common, and badly affect market’s operations.
Therefore, while waiting for more active measures to tackle the problems of the stock market, SSC finds it necessary and reasonable to adjust the daily trading band. In fact, SSC’s decision has been recognised by international organisations as an active move, and supported by the Association of Securities Investors and the Association of Financial Investors.
The lowering of the trading band will, at first, help investors calm down in the context of the market fluctuations and reconsider their investments.
According to international organisations, the P/E of 12 currently proves to be attractive (the level of 25 would be reasonable for Vietnam, and 20 for other Asian markets).
Second, as the daily trading band is narrowed, the VN Index and HASTC Index will not go up or down sharply and continuously any more as seen in the previous time. This will help prevent share sale-out movements.
Third, the temporary 2% and 1% trading bands will give more time for the government’s measures to rescue the stock market to show effects.
Fourth, this solution will help ease losses for commercial banks as banks have been asked to stop selling mortgaged shares.
Fifth, the solution will help limit surfing investors (short-term investors who buy shares today and sell tomorrow to get profit).
Besides positive impacts, the solution is expected to have side effects. It could influence the market’s liquidity, the psychology of investors and create some technical problems in transactions.
However, this is just a temporary measure. It will be removed once the market rebounds thanks to the measures taken by the government and relevant agencies.
VNN
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