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Is the time now right to raise daily trading bands again?
The VN Index has been continuously rising since March 27, the day when the decision on lowering the daily trading bands to 1% at HCM City Stock Exchange (HOSE) and 2% at the Hanoi Securities Trading Centre (HASTC) came into effect. Experts said that it is now the right time for the State Securities Commission (SSC) to restore the initial trading bands
Narrowing trading bands, the remedy for investors’ psychology
At the end of February and the beginning of March 2008, the market witnessed the continued falls of stock prices, which, according to experts, were the signal of a big crisis. There were a lot of reasons behinds this, including the domestic market uncertainties (gold, petroleum prices and high inflation). However, the biggest problem was that investors nearly lost all their confidence on the market.
A lot of measures were taken at the moment to rescue the stock market. The State Capital Investment Corporation (SCIC) got the green light from the Government on purchasing good stocks on the market. Especially, the super-corporation was allowed to open more than one transaction accounts to push up their purchase capability.
However, the SCIC’s ‘dose’ could only show a little effect. The market fell down again after just several trading sessions of rising. The VN Index continuously went down in eight consecutive trading sessions on March 14-25. There were only sellers, while there were no buyers.
On March 25, with the decrease of 24,43 points over the previous trading session, the VN Index officially broke the 500 point threshold to 496.64 points, causing the so called “investors’ confidence crisis”
Finally, SSC had to make the administrative decision on lowering the daily trading bands to 1% at HOSE and 2% at HASTC in an attempt to prevent stock prices from sharply decreasing. The decision has immediately calmed investors down, as they understand that the stock prices can only go down or up gradually instead of soaring or dropping dramatically.
Big sale trading sessions
When the VN Index was on the decrease, the only thing investors tried to do was selling stocks. They did not care about the prices and about if the listed companies had good or bad business performance. They also ignored the information about the good news that may support the stock prices.
Describing these trading sessions, analysts said that these were the ‘big sale trading sessions’, where stocks were sold dirt cheap. However, the surprisingly low prices could not make investors rethink and purchase shares. The electronic boards on trading floors all were lid in red, which showed the falling stock prices.
However, on March 27, the day when the decision on widening the trading bands came into effect, the market made a ‘volte face’: there were a lot of offers to buy, and no offer to sell.
Since then, the VN Index has been increasing steadily by 0.8% per trading session, while the stock prices has always been hitting the ceiling level. ON March 31, 100% of stock items had the prices hitting the ceiling levels, while the figures were 99% in other trading sessions. In total, the VN Index has got 20.44 points, while HASTC Index 12,38 points.
Is it the right time to renew the initial trading bands?
With the increases of 20.44 points over the last five trading sessions, the VN Index got 5 points for every session, a very modest increase. However, the modest increase prove to be high enough to satisfy investors, as the confidence crisis has been stopped.
However, another problem has arisen that many investors have left the market. When asked why he did not come to the trading floors, Chien, an investor said that he already knew the results of transactions while no need to be present on trading floors. “Share prices hit the ceiling levels, and if you have money, you still won’t successfully buy shares because no one sells,” Chien said.
Chien added that though the prices keep increasing, investors cannot make fat profit because of the low daily trading bands, though securities companies have lowered their service fee.
Listed companies and securities companies also do not want to retain the current narrow trading bands for a long time. Under the current regulations, listed companies will have to make explanations to SSC in cases their shares are transacted at the ceiling price levels in five consecutive trading sessions. In this case, all listed companies will have to make explanations as all trading sessions saw 98-99% of share items hitting the ceiling levels.
Meanwhile, securities companies complain that they have been losing a lot of money in stock trading due to the narrower trading bands. Meanwhile, they have to lower service fees in order to retain clients.
The stock market has witnessed five prosperous consecutive trading sessions. Is now the right time for SSC to retain the previous trading bands of 5% and 10%?
When deciding to narrow the trading bands, SSC said that this was the temporary measure to rescue the stock market, which meant that this would be valid for a certain time only. However, no one can know for sure how long the temporary measure will last.
VNN
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