Businesses’ financial investments: time for the yellow light

Friday, May 16, 2008
Several days ago, newspapers reported about the losses suffered by La Nga Sugar Company from its investment of VND17.7bil in stocks. Today, people hear the news that Hanoi Seafood Import-Export Joint Stock Company has injected billions VND in OTC stocks.

Sources say that the company spent VND16,360bil to buy VP Bank shares. It remains unclear about the profit and loss of the investment deal. However, experts have advised businesses to be cautious about decisions on financial investments, which are considered very risky, especially in the context of the market’s falls.

The Ministry of Construction has become the first ministry to prohibit its companies from making investments in stocks. The ministry has asked its companies to check their capital contributions to other entities and not to make financial investments at this moment.

A lot of companies have jumped into financial investments since they heard about the high profitability of securities investments in early 2007.

However, the problem lies in the fact that the investments are very risky, and while the companies are focusing on financial investments, they do not pay appropriate attention to their main business fields.

Tran Tuan Duong, General Director of Hoa Phat Group, said that the proportion of financial investments should be kept at suitable levels, which do not badly affect companies’ primary business.

“Hoa Phat’s main business is industrial production, and it never deviates from this direction,” Duong said.

Nguyen Hoang Hai, Secretary General of the Vietnam Association of Financial Investors (VAFI), said that VAFI has suggested strengthening the administration of public companies. According to VAFI, production companies should minimise investments in stocks as they need to focus on their principal fields of business.

VAFI said that if businesses have idle capital, they can put the capital into investment funds, a more professional way to save capital and make profit.

Meanwhile, commenting about the financial investments made by businesses recently, Huy Nam, a finance expert, said that no one has the right to prohibit businesses from using capital in the way they want; however, ‘the players need to be professional’.

“Financial investments should not be encouraged as these investments require professional knowledge,” Nam said. (Lao dong)