Widened trading band: some happy, others wary

Thursday, June 19, 2008
The decision by the State Securities Commission (SSC) to raise the daily trading band by 1% on both Hanoi and HCM City bourses has been applauded by some investors, but not those who fear it will result in sharper falls of the stock market.

With the decision, the daily trading band for the Hanoi Securities Trading Centre (HASTC) will be +/-4%, while the band for the HCM City Stock Exchange (HOSE) will be +/-3%.

Huy Nam, a securities expert, said that he once called for the resumption of the initially applied trading band of 10% and 5%, respectively.

“The modest widening shows that SSC is still too cautious with its moves. Wider trading bands bring more good things to the market,” Nam said.

However, Nam added that the decision, in any case, is a good thing for the market. But widening the trading band is just a short-term measure. In the long-term, the stock market needs more than just a wide trading band.

“Wider trading bands will allow stock prices to fall down more sharply or go up more sharply, but this will certainly help improve the liquidity of stocks,” Nam said, adding that more transactions will make the market more bustling.

He said that the low liquidity, which was caused by the measures to tighten the market, was one of the reasons that investors have left the market.

Those investors may return to the market when they hear that the liquidity has been improved.

However, he stressed that widening the trading band only can help invite investors to the market. There still needs to be more actions taken to revive the ailing stock market.

Meanwhile, Tran Huy Duong, Analysis Director of Hoa Binh Securities Company, has expressed his concern that the move by SSC may cause the market to fall more sharply.

Duong said that SSC seemed to be hasty to widen the trading band when the market saw 4-5 trading sessions of increasing. He believes that it is not the right time now to widen the daily trading band, as the market still has a lot of uncertainties.

The wider trading bands will encourage investors to make deals. If they make bank deposits, they will get the maximum profit of 18% per annum, while if they make securities investments, they can get the profit of 3-4% every day. A lot of investors who once suffered losses may come back to the market.

However, Duong can see problems in the SSC’s move.

“We well know that some institutions which hold mortgaged stocks may push up the sale of the mortgaged stocks once the daily trading band increases, which would certainly cause troubles for the market,” Duong said

Duong anticipates that the stock market will see the market prosper for some 4-5 trading sessions after June 19 (the day when the decision on widening the trade band becomes effective). However, the market may go down after that, as the investors who bought shares at low prices before may sell then.

However, Duong agrees with Huy Nam: the market needs long-term measures rather than just a short-term trading band widening. (VNN)