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Will the bond market be attractive in 2009?
In 2008, a lot of institutional investors and banks earned a high profit when injecting money in bonds due to the heavy fluctuations of the interest rates. However, this is not likely to repeat in 2009.
Stable profit made bonds the first choice
In 2008, the bidding interest rates of Government bonds (the primary market) set the Ministry of Finance in the bids in the first and last months of the year overed around 8-10% per annum. However, the average ceiling interest rate will be 5% in mid-2009. The interest rates proved to be relatively attractive and table in comparison with bank interest rates which fluctuated all the time in 2008.
Nguyen Viet Hai, General Director of ACB Securities Company, said that the company got VND 264 billion in pre-tax profit in 2008, which includes the profit from bond investment.
Dr. Nguyen Van Thuan, Dean of Finance – Accountancy – Banking Faculty under the HCM City Open University, said that many institutions received large profits from bond investments as they could buy during the period from June-September 2008, when the bond prices were relatively low.
However, Thuan said that this is not very likely to repeat in 2009 as the credit interest rates are believed not to fluctuate so heavily like it did in the last year.
“The State will not let the interest rates to go down sharply in 2009 due to the high risk of inflation recurrence in 2009.”
The current ceiling interest rate set for Government bonds between 8-8.5% still proves to be attractive to investors, as this remains the choice of many institutions that prioritize the safety in making investments.
In general, Thuan said, the bond transactions on the secondary market in 2009 will depend on the Government’s foreign exchange and interest rate policies. However, he is sure that institutional investors will not have the opportunities to earn high profits like they could in 2008.
Not many corporate bonds
In January 2009, Hoang Anh Gia Lai Joint Stock Company announced the issuance ofVND 350 billion worth of bonds which had the face value of VND 1 billion per bond. The bonds will be matured in two and three years while the interest rates are floating, which are adjusted every six months. The interest rate bondholders can get is equal to 150% of the basic interest rate announced by the State Bank of Vietnam.
In October 2008, HAG also issued VND 650 billion worth of bonds with the interest rate for the first six months between 20.5-21% per annum.
Corporate bonds now just account for over 1% of the total listed bonds. Thuan said that enterprises have many opportunities to successfully issue bonds if they offer the interest rates higher than the market rates.
“It is necessary to encourage corporate bond issuance, as bonds are not the only channel for enterprises to mobilize capital, but also the channel for people to invest their idle money,” Thuan said.
Director of a foreign investment fund in HCM City noted that Vietnam’s bond market has not developed well because there are few corporate bond items.
However, a lot of businesses now begin thinking of mobilizing capital through the bond market which makes people hope that the capital market of Vietnam will develop more.
DTCK
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