Stock market might get back on its feet – SSC official

The benchmark VN-Index fell 45 percent this year.
The stock market might rebound as a result of a series of measures designed to boost the exchange, head of the State Securities Commission’s Market Development Department Nguyen Son told Thanh Nien.

As of next Monday, the intraday trading bands at the Ho Chi Minh City Stock Exchange (HoSE) will be increased to 2 percent and at the Hanoi Securities Trading Center (HASTC), from 2 to 3 percent.

Why didn’t the State Securities Commission (SSC) widen the bands by 3 or 4 percent, rather than just 1 percent? Will the new margin increase liquidity?

Nguyen Son: Widening the intraday trading bands is simply an administrative and temporary intervention that depends on the stock market’s reactions.

SSC will continue to widen the bands further when the stock market becomes more stable.

In the past, SSC adjusted the bands many times.

For instance, when the stock market was rising from 2000 to 2001 or receding in the following two years, we used five, seven and three percent bands respectively.

Widening the bands at the HCMC and Hanoi stock exchanges by 1 percent is appropriate at the moment.

But we can not say by how much a percent liquidity will be increased as the result since this also depends on market reactions.

How will SSC react if the stock market goes down after the trading bands go up?

Adjusting the daily trading bands is only one of a series of solutions designed to revive the stock market.

Others include encouraging share repurchases and submitting to the government a special stock exchange plan for the State Capital Investment Corporation.

The State Bank of Vietnam (SBV) will also buy foreign currencies to ensure an adequate supply of dong, develop numerous loan plans and work with the Vietnam Banks Association to instruct commercial banks to halt selling mortgaged shares of credit and repo contracts.

If the market does not respond positively, we will surely have to think of stronger measures.

Do you think the wider trading bands will encourage share dumping?

If the market shows positive signs, I don’t think banks will sell mortgaged shares.

If banks encounter a liquidity shortage when they stop selling these shares, SBV will buy bonds or stocks from banks at the rediscount interest rate of around 9 percent per year.

Listed companies have also submitted audited reports on their financial conditions last year which were very positive.

This is an encouraging sign.

Another favorable sign is that the price-to-earnings ratio is only around 12, which is good.

Analysts say shares with the ration of less than 20 or between 20 and 25 are good to buy.

The stock market seems to be rebounding and if the public is again optimistic about it, banks will be unlikely to speed up selling mortgaged shares.

Some say foreign investors are withdrawing from the local stock market. Is that true?

Yes, there is a rumor to that effect.

But I am sure foreign investors are not withdrawing their investment as we have looked into the accounts of foreign investment funds.

What is happening is only that some investment funds are selling some shares to buy other shares or selling shares to buy bonds to take advantage of the high interest rates offered by banks and a strengthening dong.

Stock market operations also show that foreign investors are not leaving.

In recent sessions at HoSE and HASTC, foreign investors have placed many more buying orders than selling ones.

For instance, in the four sessions after the SSC lowered the daily trading bands temporarily in respond to the sinking stock market, foreign investors placed buying orders for a total 32.2 million shares while they placed sell orders for only 4.6 million shares.

Nonetheless, the fact that foreign investors actually bought 1.88 million shares in these sessions while succeeding in selling all the 4.6 million shares they wanted to sell made some worry.

But there is a reason that might explain why the actual purchase by foreign investors was so low.

When the daily trading bands were lowered, domestic stock investors were optimistic and placed buying orders at the maximum prices.

Foreign investors, on the other hand, placed orders to buy shares at the market prices or a little higher.

If the numbers of selling and buying orders were equal, almost all buying orders from domestic investors were matched.

So at first glance, foreign investors seemed to be leaving as they actually sold more than they bought.

Regulators loosen stock market trade band

(04-04-2008)
Securities officials expect investors to return to the stock exchanges following the State Securities Commission’s decision to loosen the daily trading band, effective next Monday. — VNA/VNS Photo Hoang Hai

HA NOI — Facing the prospect of a stock market nearly grinding to a halt over the past week, the State Securities Commission yesterday decided to loosen the daily trading band in effect on the nation’s stock exchanges by one percentage point, only one week after tightening the band.

Effective on Monday, the trading band on the HCM City Stock Exchange will be 2 per cent, while that at the Ha Noi Securities Trading Centre will be 3 per cent.

The trading band refers to the amount listed shares are allowed to gain or decline in value within a single trading day.

Last week, faced with a plummeting stock market, the State Securities Commission severely tightened the band to stave off a rapid decline in share values. The move had a dramatic chilling effect on trading over the past week, as traders simply stayed away from the market and daily volumes slowed to a trickle.

Volume on the HCM City exchange yesterday was only 1.9 million shares, only a quarter of the daily volume on March 25.

Nguyen Son, head of the commission’s market development department, said, "We decided it today as we have seen an improvement in the market in the past several days, and there are many supporting factors in favour of loosening the band, including agreement by commercial banks to delay selling shares they hold as collateral."

While volumes have shrunk, the VN-Index has increased daily within the maximum of the trading band, resulting in a cumulative 6.5 per cent increase in the seven sessions since March 25. The Index yesterday closed at 529.23, up 0.78 per cent.

Meanwhile, Son noted, the narrow band was allowing investors only a tiny profit in day trading, and had had a negative impact on market liquidity.

The market threatened to become frozen if the tight trading band was retained, he said.

A number of market analysts were urging a further loosening to restart sluggish trading.

"How much profit investors can earn with a two- or three-per-cent band? It is so little," said John Nolan, an analyst from a HCM City-based fund management company. "Given that buys are outweighing sells at the moment, investors now are thirsty for stocks."

In other stock markets worldwide, Son noted, there were circuit-breaking systems in place when the market plunges too deeply within the course of single trading session. The domestic market has no similar system, so tightening the trading band was a stop-gap measure.

"In the position of a market regulator, our commission has a detailed plan for better development of the stock market. We will do our utmost to work with other related offices as well as banks and securities firms to find the best way to achieve the best possible result," Son said. — VNS