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Dip in trading volume shouldn’t cause alarm
Recent downward adjustments for the domestic stock market were accompanied by significant trading volume slumps, and now investors are concerned with whether money flows will stay in the market. Nguyen Viet Duc, deputy director of Sai Gon-Ha Noi Fund Management Co’s research and analysis department, spoke withViet Nam News reporter Nguyen Ngoc Duy about capital flows on the market.
How do you assess the capital flows that circulated in the stock market during the last phase of the downward adjustment, when trading volumes fell sharply?
Trading volumes declined sharply over the last few weeks due to the following factors:
First, the State Securities Commission took drastic measures to require securities firms to stop implementing new repo contracts. The commission’s intervention was an important factor that helped cleanse the market and restrict hot money flows and financial levels, which could have created a bubble stock market.
(Repo – a repurchase agreement – is a sale of securities under an agreement to repurchase those securities at a specified date with a payment of interest.)
Second, volume declines could be because of temporary withdrawals by major investment organisations such as PetroVietnam Finance and Dragon Capital. The average size of selling orders has always been larger than those of buying orders for over a fortnight, since the market reached its peak in mid-June. Many companies and institutions unloaded their holdings due to the pressure of having to materialise profits after a 2008 of business losses. They also wanted to avoid a possible situation where the market could rapidly reverse its direction, like it did at the beginning of last September. Significant parts of money flows are awaiting investment opportunities in convertible bonds, or in shares from banks’ equity-increased issuances in 2009.
Third, we witnessed sales by many firms and major shareholders, as well as inside shareholders. Sacombank sold 18 million shares, and Song Da Urban-Industrial Zone Investment and Development registered to unload 2.5 million shares of Viet Nam-Italy Steel. Money from inside stakeholders, after being diverted from the market, will be pumped into production and business activities, and there’s little chance that the money will return to the market any time soon.
Finally, some capital flows were withdrawn from the market by individual investors, after they reaped significant profits from market growth of over 100 per cent during the last two quarters. A warmed up property market and an extraordinary increase in import turnover of such luxury goods as cars are proof of this possibility. However, wise investors won’t accept high property prices, as the real estate market has increased too fast over the past months. In fact, high-end dwellings in HCM City witnessed insignificant changes over the past weeks. So these money flows may soon come back to the stock market when it becomes more attractive.
In the short term, we haven’t seen any chance that the market can break records in trading volumes like it did in mid-June, as the market has lost a part of its "unreal capital" (from securities repo). But it may be excessive to worry that stock market capital inflows will become exhausted. The average trading volume over the past few weeks was still higher than that of April by 30 per cent, and the VN-Index by about 35 per cent, while the average trading value was higher than that of May and double that of April.
How has credit growth, especially in securities lending, affected the market over the last few months? Is there any credit risk for the market now?
There was a similar-direction relationship between the growth of stock indices and the growth of credits and money supplies. In the first half of this year, money supplies grew 16.36 per cent, while it increased only 4.25 per cent over the same period last year. During May and early June, when securities trading volumes continuously hit record highs, outstanding loans and money supplies also experienced their strongest growth since the beginning of the year.
Currently, many people have expressed worries that money from credits has flown into the stock market. But the State Bank of Viet Nam recently announced that the growth rates of stock collateral and consumer lending were all lower than rates in other credits. Close supervision by the State Bank will also help restrict hot money flows into the stock market, which can cause a bubble market and negatively affect economic recovery. The State Bank is also considering narrowing beneficiaries of the interest subsidy programme as well as implementing anti-shock measures for enterprises when the programme ends.
By July 4, as much as 75 per cent of the total value of the [Government] demand stimulus package was disbursed. As there are concerns about hot credit growth, growth in money supplies and outstanding loans is expected to be slowed down in the third quarter before increasing more strongly in the fourth to meet the credit growth target of 30 per cent projected for this year.
What are the prospects for the VN-Index by the end of the year?
The world economy is seeing signs of stabilisation. It will take a long time for it to recover, but the bottom of the economic crisis happened in the first quarter. Domestically, the effectiveness of demand stimulus and interest subsidy programmes will prove clearer during the rest of the year, with exports expected to increase thanks to rallies in the world economy. As an economic cycle, the third and fourth quarters are often periods where the economy grows the most. Economic growth will create conditions for satisfactory company turnover and profit growth. With analysis on economic cycles during recent years, the GDP in the second half of the year is expected to increase about 20 per cent over the first half. On this basis, I think stock indices can expand 20 per cent during the rest of the year.
At present, what factors most affect market trends?
In the short term, second-quarter corporate results will play an important role in helping prop up the market, especially results for banking, finance and property sectors, which represent major market ratios and determine trends of the VN-Index. News about banks’ performances has been announced and met investors expectations. And now investors are paying a lot of attention to real estate companies, with the property market recently warming up.
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