SCIC wavers on pumping funds into ailing stock market

Thursday, May 8, 2008
After the Tet holiday when the stock market saw a free fall, the State Capital Investment Corp (SCIC) announced that it would pump trillions of dong to purchase some share codes to save the stock market. Nearly two months from the announcement, the stock market to date has not rallied, even slumped deeper and longer. Investors said that the SCIC's announcement made a bull trap, which caused big losses for many investors especially individuals.
Information on purchase time, selected share codes and particular money amount spent on share purchase was kept in secret whereby investors wondered whether SCIC would use money to support the stock market like previous commitment or not.
One investor at Thang Long Securities Co's trading floor doubted that factually, SCIC has not purchased shares in as its announcement that is aimed to stabilise investors' psychology. To rescue the stock market, SCIC needs to spend about 5-15 trillion dong.
Since March, the stock market has an average trading value of about 500 billion dong each session. If SCIC's purchase is really implemented, the market trade and demand will absolutely increase considerably. Through the inventor's observation, there has had no change in market trade since March 10 when SCIC's announcement was released.
An individual broker explained, SCIC's securities purchase perhaps is implemented under the negotiated transaction method. If so, the price rescue will not be effective. In addition, the negotiated transaction value recently has not been efficient yet for investors to believe in SCIC's efforts.
According to an analyst, different from investors' misunderstanding, share buyback affects strongly to enterprises' profit�the most important factor impacting to share prices. Secondly, purchase and holding of the large share volume will make reduce Vietnamese capital market's transparency that inherently has tumbled sharply. Thirdly, SCIC's share buyback naturally is to move the capital from private to the state holding, which is contrast with the general equitisation trend of Vietnamese economy at the moment. Fourthly, the corporation's keeping of information on share purchase raised doubts that SCIC could only buy shares of enterprises with a good relationship. This affected to the prestige of the corporation. Fifthly, changes in share prices depend on both demand and supply law and investors' faith in the economic prospect in general and development of the stock market in particular. generally Vietnam's economy and the world's economy now have undergone the difficult period so Vietnamese stock market is affected by above disadvantages causing recent slumps. Therefore, the demand increase is only the short-term psychology solution, but it could not save the stock market absolutely.

Finally, Vietnam now is facing a serious inflation problem. The government needs to be cautious and prudential in pouring a huge money amount into the stock market or spending on solving inflation problem. Nguyen Van Quan, project director of Ba Dinh Real Estate JSC said that the government is right as selecting to save 80 million people instead of rescuing 300,000 securities accounts.

As stated by Le Thi Bang Tam, SCIC chair, the corporation naturally is not a fund in charge of regulating the stock market like investors' misunderstanding. SCIC is a special financial institution operating as a financial investment group in the market economy. The corporation has responsibility to ensure the state investment capital effectively. Additionally, SCIC aims to help enterprises improve administration model and help the stock market develop in long-term.

Moreover, according to Tam, SCIC's asset is very large but mainly is corporate shares with a limited volume of cash. Shares subject to offloading and repurchase plans are worth tens of trillions of dong. The public requirement that SCIC was proposed to spend money on purchasing all shares is impossible. It is supposed that if SCIC spends money on purchasing all shares of offloading and repurchase plan, the state will see a huge loss and suffer highly potential risks that investors should have suffered in line with the market's norms. (TBKTVN)