Fairy tale ends for businesses investing in securities market

June 13, 2022 - 08:47


But since the beginning of April the stock market has been experiencing a major correction, the strongest in the last two years.— Photo diendandoanhnghiep.vn

 Compiled by Thiên Lý

Analysts say returns on investments businesses made by diverting their funds into the stock market are drying up.

In the second quarter those with large investments in certain stocks could not sell out in time and suffered heavy losses as they needed money to reinvest into their core business.

Things had been much better in the first quarter.

In the first three months the Tasco Joint Stock Company earned VNĐ126 billion (over US$5.4 million) from its stock investments, and reported an after-tax profit of VNĐ88 billion.

The Joint Stock Sam Holdings Company reported earnings of VNĐ47.7 billion from the securities market, a 139 per cent increase from the same period last year.

However, their core businesses remained mired in difficulties, and their profits mainly came from financial investment.

Tasco is in construction and engineering, and specializes in building infrastructure, residential and commercial buildings for lease and sale and new urban areas. It provides engineering, testing and supervision services for construction projects. It also manufactures concrete products and trades construction materials and vehicles.

Sam Holdings is in the telecommunications sector with its main products including fibre-optic and copper cables.

In the last two years, when the country was severely affected by the COVID-19 pandemic, the production and business activities of most enterprises ground to a halt, and many of them had idle money while the market boomed. Many turned to speculating in the stock market, and, as happens during a bull run, made great profits until the end of the first quarter.

But since the beginning of April the market has been experiencing a major correction, the strongest in the last two years.

In a recent interview with Vietnam News Agency, a State Securities Commission (SSC) official said the stock market was going through a strong adjustment period due to the combined impacts of local psychological factors and risks from the international market such as the US raising interest rates sharply, geopolitical tensions, inflationary pressures, and sharp increases in commodity prices, including of oil.

He said though the stock market was expected to recover and grow again in 2022 and in the following years, following the recent volatility, the regulator was focusing on short-term solutions to stabilise it and reassure investors.

One of the solutions would be to make changes to improve transparency and drive liquidity.

As for medium- and long-term solutions, he said the SSC was completing a legal framework for the stock market and a development strategy with clearly defined long-term goals, solutions and roadmaps.

It was reviewing the Law on Securities and guiding documents, especially with respect to transparency of corporate disclosures, the rights and responsibilities of participants and sanctions for violating regulations, thereby restoring investors’ trust and confidence, he said.

Soon it plans to roll out more solutions to improve operational efficiency, service quality, financial capacity, and the professional ethics of service providers in the market like securities brokerages, audit companies, fund management companies, asset valuation companies, and credit rating agencies.

To attract foreign portfolio investment, the SSC is speeding up efforts to get Việt Nam upgraded from frontier to emerging market status.

Analysts say it is those large-scale corrections to the stock market that have contributed to significantly affecting profits of many investors whose margin accounts had to face margin calls. This is because those corrections made the value of many securities in brokerage accounts fall below a certain level, known as maintenance margin.

A margin call occurs when a margin account runs low on funds, usually because of a losing trade.

A margin call is a broker’s demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when the account value depresses to a value calculated by the broker’s particular formula.

Another important reason that has made businesses turn their back on the stock market is that the economy is recovering strongly and so businesses need money to resume their core business, meaning they have to reduce investments in financial assets like stocks.

Thus, several companies that were making huge profits in the last couple of years from financial investments had their incomes from this investment channel dropped significantly in recent times.

Analysts said this is likely to benefit the economy as money flows back into production activities but would bring pressure on the stock market.

Industrial land rents surge as VN reopens economy

A sharp increase in rents is being seen at several industrial parks (IPs) in the south.

Market observers said in the first quarter of this year rents averaged US$120 per square metre, an increase of 9 per cent from a year earlier.

In HCM City, the average rental was $190 and the occupancy rate hit 90 per cent, real estate service provider Colliers Vietnam reported.

It attributed the rental increase to strong demand.

Property consulting firm JLL said it was due to a new wave of foreign direct investment in Việt Nam, especially the southern region, after its reopened the economy and a desire among existing businesses to expand.

Savills Vietnam said after international flights to Việt Nam resumed, foreign investors are able to travel to the country to explore investment opportunities, sign contracts and establish manufacturing facilities, which is also fuelling demand for industrial lands, warehouses and production facilities.

Many IPs in HCM City, the country’s biggest economic hub, have run out of land, causing investors, including foreign, to seek lands in IPs in neighbouring provinces like Bình Dương, Long An and Đồng Nai.

Savills also reported that IPs registered the biggest growth in the real estate market during the COVID-19 period. —VNS