Recovery raises rumours of bull trap on stock market

Friday, June 20, 2008
Stock market has reversed upward a tad after months of a bear run. However, is this an opportunity? Investors, particularly retail investors, are tired of watching the stock market going down and down day by day. Due to the stock market slide, the capital that should be pumped into the stock market is transferred to other investments such as gold, foreign currencies, even for eliminating the risks some investors deposited their money to banks although they known that real return could be negative despite of interest rate is increasing.

Starting from Hanoi Securities Trading Centre, followed by HCM stock Exchange has witnessed a recovery during some recent days. The question is whether the VN-index and HASTC-index will still be in upward trend in coming days or it is just rally in some trading days in the down trend or a bull trap.

Opportunities

Share prices declined sharply in comparison with the year early, many shares have approached to face value and even others are under face value. The opportunity of buying "cheap shares" with the prices close to face value, which was previously only available for promoters [founding shareholders] or "special shareholders" one or two-years ago, is available to everyone at the moment. Many shares that had priced at 20 times of face value now are currently traded at 40.000 dong each. People said the opportunity of lifetime has come.

An other point of view has been agreed by people is that in the context of real negative interest rate because of high inflation, investors should select securities as a long-term investment channel with a strong faith that the macro economy will stable soon and the economy will continue to develop in next time.

In addition, investments in gold and foreign currencies will not bring in high profits, even it is impossible to make profit by trading in the foreign currency market. So that, securities investment is the most prospective nowadays.

The above optimistic thinking has been contributed by State Securities Commission's recent decision of increasing the stock-trading band for both stock exchange floors. Many investors believe that transparency will be better with a big trading volume.

Threats

The first threat to the stock market will happen when the payment period of T+4 (four days after the transaction finishes) comes, at this time, many shares has increased more than 5% in prices and there will be more opportunity that investors make real profits by selling shares.

Whether the demand for securities will be maintained for next trading days because there is no clear signal for a real recovery of the stock market. Moreover, the Consumer Price Index (CPI) of June is being listed. CPI is a critical factor in making decisions of financial policy makers, and charter accountants.

In addition, even for analysts, it is difficult to find shares that could bring in a dividend higher than banks' interest rate in 2008. Because of paying the capital cost accounting for 20% of money amount that that company has to pay to creditors (if company has debt) is great efforts at the moment.

How many do investors tend to long-term investment nowadays? Even though the macro economy is stable and enterprises reached satisfactory business results, the stock market will grow stably when investors join the markets as the true investors.

It is supposed that the stock market continues growing up and investors are glad to waiting for the day when the new stock trading band is enforced, the opportunity of the increased stock trading band to 3-4% will be enclosed with the threat that it could be reduced with the corresponding fall because many share prices will increase at attractive rate of 5-10% by that time.

Notably, it is hard to find any comments on the stock market from experts for guiding investors some recent days. So identifying opportunities or threats of the stock market depends only on investors. (TBKTVN)