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Stock market hanging by a thread   2012-02-07 - TBKTSG

“Exhausted liquidity”, “faint confidence” are the true words to describe the current situation of the stock market. Investors keep indifferent to stocks, businesses do not want to list shares on the bourse, while the state owned enterprise restructuring process has slowing down.

Liquidity less than 0.14 percent of the market capitalization

“I will not buy shares of any securities companies. The time when 5000-8000 billion dong worth of shares were traded a day is over. How can securities companies live?” a securities investor said.

The liquidity has fallen to 200 billion dong worth of trading value per day at the HCM City Stock Exchange (HOSE) and 100 billion dong at the Hanoi Stock Exchange. With such low trading values, no brokerage firm can make profit. Only a few securities companies have reportedly made profit, because they deposited money at banks.

According to HSC, a securities company, the liquidity on the market capitalization value has dropped dramatically. In fact, over the last five years, the market capitalization value has decreased sharply, but it has been offset by newly listed companies. However, there is nothing that can offset the liquidity decrease.

In 2007, the average daily transaction value was equal o 0.27 percent of the market capitalization value. In 2009, the figure rose to 0.47 percent thanks to the government initiated demand stimulus package. In December 2011, the average transaction turnover of the two bourses plummeted to 0.14 percent.

T+2 mechanism unfeasible?

The thing in the plan to restructure the stock market submitted by the Ministry of Finance to the government that discourages many people is the absence of the T+2 mechanism (investors can sell stocks two days after they buy them instead of four days as currently applied).

T+2 has been considered as the solution which allows to revive the liquidity most quickly in the current conditions. Even the Lao stock market, which became operational in 2010, also applied the mechanism right at the beginning.

Two years ago, in early 2010. it was Chair of the State Securities Commission Vu Bang said the T+2 mechanism would be applied in the first quarter of 2010. However, the application has been delayed for indefinite time which has been explained by the securities companies’ low readiness in terms of technologies.

Thoi bao Kinh te Saigon has quoted its reliable sources as saying recently that T+2 proves to be unfeasible, and SSC still cannot make official announcement about the solution.

Hanging by a thread

It is clear that the stock prices are much cheaper than the real value, but people still do not want to care about this. In other countries, when the stock prices fall to below the real value, medium and long term investors will buy stocks in, because they believe that it’s time to do that. Will this happen in Vietnam.

Let’s see the things expected to come

First, 2012 would be the year when state owned economic groups and general corporations sell shares in masses to withdraw capital from non-core business fields as per the request by the government.

The state owned enterprises have been told to take back capital to focus on their main business fields. The total investment capital injected in non-core business fields is estimated at tens of thousands of trillions of dong. The enterprises would sell stakes right when they see first signs of the market recovery.

Second, a lot of listed companies had to buy treasury stocks in 2011 when the stock prices fell down too dramatically, and they are now incurring loss. As the interest rates are overly high, and it is difficult to access bank loans, a lot of companies would have to sell stocks to get money for working capital.

Third, domestic and foreign funds are under the pressure and they may have to close the funds if investors refuse to extend the operation duration.

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