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SCIC not miracle for stock market
The announcement by the super-corporation State Capital Investment Corporation (SCIC) that it will buy stocks to stimulate demand has not helped rescue the falling stock market.
While 300,000 securities investors were puzzled by sliding stock prices, SCIC made a strong commitment that it would spend thousands of billion VND to buy stocks to help stimulate demand.
However, the situation has not improved over the last two months, since the announcement was made. The market has continued falling since then.
Some investors have even blamed SCIC for their losses, saying that SCIC’s announcement created a ‘bull trap’, as it prompted individual investors to buy stocks at that moment in the hope that prices would go up with the corporation’s intervention. However, as the market has been sliding, the investors have incurred big losses.
As SCIC announced before, the information about when it will buy stocks, the securities items to be bought and the sums of money it will spend to buy stocks will be kept secret. Therefore, doubts have been raised about whether SCIC has spent money to buy stocks as promised.
Anh Son, an investor on Thang Long Securities Company’s trading floor, guessed that SCIC has not bought any stocks so far, and that SCIC just promised to buy stocks to calm investors down. Son estimates that in order to rescue the stock market, SCIC needs to spend VND5-15tril.
Since March 2008, the average trading volume has remained at VND500bil per trading session. If SCIC did buy shares on the market, the trading volume would increase sharply. Meanwhile, Son said that he has not been able to see any considerable increase in the trading volumes in trading sessions since March 10, when SCIC announced its stock purchase plan.
A broker at a securities company said that the purchase by SCIC might be carried out under the form of negotiated transactions. If so, the corporation would not be able to help prevent prices from sliding further. Moreover, the trading volume under the form of negotiated transactions would not be big enough to persuade investors to believe in SCIC’s efforts.
An analyst says that he would not be surprised if someone told him that SCIC had not bought stocks, which he thinks is understandable.
In fact, the purchase of stocks of companies would not cause any changes in the companies’ profit; the profit and performance of businesses is the most important thing in determining the value of their stocks.
Secondly, purchasing and keeping a large volume of stocks will weaken the liquidity of stocks, which has been very low over the last time.
Thirdly, the nature of SCIC’s stock purchase is transferring capital from the private sector to the state sector, which proves to come contrary to the current equitisation process.
Fourthly, the fact that SCIC does not reveal the information about the share items it will purchase may raise doubts that SCIC is only buying stocks of companies which have good relations with SCIC.
Fifthly, the stock prices on the market not only reflect supply and demand, but also reflect investors’ confidence in the prospects of the national economy. Vietnam’s economy, like the world’s economy, is now in big difficulties, therefore, it is quite normal that Vietnam’s stock market is falling down. Stimulating demand is just a short-term solution – it cannot solve the problem to the root.
Finally, Vietnam is facing a serious inflation problem, and the government needs to weigh the pros and cons of spending a huge sum of money to rescue the stock market or reserve money to fight inflation.
Nguyen Van Quan, Project Director of Ba Dinh Real Estate Joint Stock Company, said that the government has every reason to decide to rescue 80mil of people instead of 300,000 securities accounts.
Le Thi Bang Tam, former Chairwoman of SCIC, said that the corporation is not the fund to stabilise the market as people mistakenly believe.
Tam also said that SCIC’s assets are very big, but most of them are in stocks, while its cash is limited, so investors should not require SCIC to spend all its money to buy stocks. If the government provides money to SCIC for the corporation’s purchase of all mortgaged stocks, the losses would be very big. Meanwhile, investors, not SCIC or the government, would bear the losses.
VNN
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