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Bank interest rates going down, bonds becoming more attractive
It seems that investors prefer injecting money in bonds to stocks thanks to the higher attractiveness of bonds at this moment and their greater safety with bank interest rates expected to further decrease.
As the stock market has become more risky, investors have begun eyeing the bond market. On December 4, after 18 consecutive trading sessions that saw foreigners’ sales higher than their purchases, the Hanoi Securities Trading Centre (HASTC) witnessed foreigners’ purchases higher than their sales, once again. The net purchase reportedly reached 280,000 bonds, worth VND30.7bil.
Analysts say that injecting money in bonds now is considered attractive and safe as bank interest rates are expected, after many times of decreasing, to decrease further.
After the decision by the State Bank of Vietnam to slash the basic interest rate, a lot of commercial banks have announced interest rate cuts to VND10% per annum at the lowest level, while the average interest rates are now at 13-14% per annum. The rates are the same as the ones at the end of 207, and the lowest levels in 2008, while representing the decreases of 6-11% per annum over the end of June 2008.
Chu Hung, an independent economist, said that the decreasing bank interest rates prove to be the main reason that investors are now making investments in bonds.
A representative of SME Securities Company said that it is untrue to say that foreign investors only eyed the bond market when the stock market showed uncertainties. Foreign investors sold a lot of bonds in October 2008, nearly 150mil, which showed that they held a big volume of bonds before.
Recently, with more interest from domestic commercial banks, the bond transaction volume has been on the increase. For example, on December 8, 2008, the figure was over 60mil bonds.
Though investment in bonds is considered a safe and stable investment channel, which can bring stable profit, the bond market previously was the playing field mainly of foreign investors. Domestic investors, including commercial banks and securities companies, were not really much interested. It is partially because investors now make investments in bonds because they aim to get the high interest rates, while there is not a bustling secondary bond market in Vietnam.
A representative of SME Securities Company said that bonds mainly attract long-term investors who have a lot of capital and good knowledge of the bond market. Foreign investors satisfy all those conditions, while among domestic investors, only big financial institutions can.
According to the Ministry of Finance, the total capital mobilisation through bond issuance in the first ten months of the year fulfilled 52% of the yearly plan. The bond issuance through the state treasury system fulfilled 42% of the yearly plan, while the issuance through the Vietnam Development Bank fulfilled 82% of the plan.
In 2008, except the Vietnam Express Corporation (VEC), which issued bonds with government guarantee, other economic groups and state general corporations have not issued bonds due to the lack of favourable conditions, including the high inflation and high interest rates. Sources say that the Vietnam Shipbuilding Industry Group and the Electricity of Vietnam are following necessary procedures to mobilise capital for investment projects.
The Ministry of Finance, in its plan to develop the bond market by 2010, said that it would amend Decree 14 on government bond issuance in an effort to raise the liquidity and attractiveness of the nation’s bond market.
The ministry is planning to issue regulations to encourage the issuance of bonds in big lots, and create favourable conditions for the development of the secondary bond market.
With the renovations, the bond market is expected to be very bustling in 2009, creating a more attractive investment channel for investors, both foreign and domestic.
DTCK
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