RICKS IN VIETNAMESE STOCK MARKET FOR INDIVIDUAL INVESTORS

LY Xuan Ngoc
Management of Business Development
Faculty of Economics and Business Administration, Babes-Bolyai University

Abstract
Vietnamese stock market has prospered for the first half of 2014. This result comes
from the changes of macroeconomic policy, lower interest rate and improvement of the
economy, etc. Although the stock market goes up hotly, investors even have to be more
careful with these changes of the market. The paper is going to examine some of the
risks that individual investors often encounter on Vietnam's stock market, including the
two typical risks which are risk from market and risk from the investors themselves. The
article is also going to give some recommendations for investors to avoid these risks
and to forecast risks that may occur in the future on the market.

1. Vietnamese stock market's performance in the first 6 months of 2014

Securities and Oil and Gas sectors gained

the most, by far the remaining sectors.

Vietcombank Securities Company has

recently released a report to sum up the
situation of the stock market for the first
half of this year. The report reviews that
the market had a strong spurt in the first
quarter semester and a quick recovery
after a deep correction in the first half of
the second quarter semester. The liquidity
of the market in the period increased
strongly over the same period last year.

In terms of capitalization, unlike previous

quarters, the average market cap rose to
lead the market in terms of growth.

By groups, there were only 4 groups that

rose its points, meanwhile the remaining
three groups adjusted slightly compared
to the beginning of 2014. In particular, the

According to experts, in the first 6 months

of the year, the economy maintained the
stability and the expectations of investors
and the market about its recovery in 2014.
But along with that, a lot of difficulties and
problems still exist, such as lower credit
growth, bad debt, tensions in the East
Sea are risks to be considered and may
affect the economy's recovery in the
second half of 2014.[1]

 VN-Index hit a peak of 607.55 points

With a strong upward trend during the first
3 months, the VN-Index had risen to over
600 and peaked at 607.55 points in
session on the 24th of March. Up to now,
this level is still the top despite of the VNIndex's efforts to conquer but not yet
achieved.

The session that gained the most giant

weight
On February 20th, a record for the
amount
of
securities
transferred
successfully was established in the Ho
Chi Minh City's Stock Exchange. End of
this session, there were 259,679,130
shares and fund certificates were traded
for a total value of 4,031.64 billions VND.
In 2013, the average volume per session
was 64.48 million shares, worth 1.060
billion VND. Thus, the volume of the
record was more than 4 times higher than
the daily average trading volume of 2013.
But more than that, the session on March
25th, one day after the VN-Index hit peak,
the Ho Chi Minh City City Stock Exchange
established a new historical level of
trading volume in one session. A total of
up to 261,346,500 shares, corresponding
to 5,065 billions VND was bought and
sold successfully.

The stock market on the

judgement day of Nguyen Duc Kien

correction on the first day when Nguyen

Duc Kien and many other related people
in the financial sector were judged.
Specifically, the session on April 16th,
VN-Index fell 11.8 points, corresponding
to 2.01%, to 574.29 points. HNX-Index fell
2.04% to 82.62 points. With the decline of
many securities, market capitalization loss
of the two stock exchanges was totally
24,032 billions VND, equivalent to 1.14
billions USD loss.

Market's "collapse
cheap-price effect

session"

and

After 14 years of opening, the stock

market witnessed its worst session. On
May 8th, VN-Index drifted to 32.88 points,
or 5.87% from the previous session.
HOSE Index slipped from 559.97 points to
527.09 points.
However, in contrast to the sharp drop of
the indexes, the trading liquidity of the
session increased mutantly, more than 3
times higher than the previous trading
day, reaching 2,862 billions VND. It was
because many investors tried to
consolidate, especially foreigners while
the market was having a very sharp
correctio. Specifically, they bought more
than 7.8 million units, worthing a net
purchase of over 243 billions VND, nearly
five times higher than their net buying
value in the previous session.

1st

Although the stock market did not happen

any historical reduction, it still had a huge

Stretching foreign room: 100% is

perfect

Information about stretching room for

foreign investors has been triggered for a
long time. On June 17th, the seminar with
"Are enterprises ready for opening room?"
theme attracted the attention and
participation of investors.
The seminar showed that there are two
different extremes of the business about
room relaxation with one side of "joy" and
the
other
of
"undecided",
even
apprehensive viewpoint.
From another point of view, Andy Ho,
CEO of Vina Capital said that if it is
possible, the open up to 100% is ideal.
But he also stressed the fact that
relaxation room level is not the most
important issue for the stock market and
investors, but the size, the quality of
goods and the enterprises' management.

2. Some common risks of Vietnamese

stock market
Investors is excited about the boom of the
stock market in the first half of this year
when there was a massive increase in
demand. However, this is when investors
need to beware of the potential risks in
the market.

2.1. The risk factors from the market

a. Fraud on the market
The phenomenon of fraud on stock
markets exists in many different forms
such as falsifying financial data; polishing
company; hiding risks or bad news from

investors; gutting company; Ponzi game

(taking money from new investors to pay
old investors and also to put in their
pocket,
meanwhile
the
company's
business actually does not create real
profit); cornering the market's securities
price; insider trading; using rumors, fake
analysis, etc.
In all such scams, the victims are the
investors. Once investors have been
losing money because of these scams,
there is very little possibility to reclaim
their lost money.
In 2011, the stock market plunged even
further momentum in the stock price and
the number of investors. Before quandary,
to attract investors, some brokers
deliberately violated the provisions of the
State Securities Commission.
At the same time, some investors have
released false information to create a
virtual fever stocks, to manipulate stock
prices, as represented by the event of
CEO of Far East Pharmaceutical
Company when he manipulated DHT (Ha
Tay Pharmaceutical) stock's price by
over-declaration and virtual revenue
generation for the company.
Therefore, the company had to terminate
operation by the end of November 2011
and its CEO was judged criminally. This is
the
first
criminal
prosecution
in
Vietnamese stock market.

b. Risks from companies' investment

activities

This risk is very popular nowadays

because of the impact of the global
economic crisis. Many companies loss,
even have to declare bankruptcy. In the
first quarter semester of 2012, there were
more than 12,000 companies which had
to close and decommission. In consequence, investors in these companies'
lost everything.
Since mid-2008, the real estate market in
Vietnam has been frozen. As a result, the
stock price of this industry group has been
influenced. It has felt more than 80%
compared to the first part of 2008. For
example, TDH stock (Thu Duc Housing
Development) has dropped from 141,000
VND to 28,900 VND per share.

c. Policy risk
The government agencies may issue
different types of policies directly affecting
investors, eg taxes on investment profits,
the provisions of the securities trading,
regulations about foreign currency
transferation, etc.

d. Information risk
"Asymmetric information" problem is an
emerging issue in securities investment in
Vietnam. It is very difficult to know the true
state of companies, because the
information in the financial statements are
often
unreliable.
Moreover,
some
"insiders" get information better and
earlier, and then trade securities based on
that, while others did not receive the information, or just got them too late.

For example, the information about the

collapse of Song Da Corporation for
Investment and Development (SJS)
reported by Tien Phong Newspaper on
January 12th 2007, actually, the company
gave 3 bonus shares for 1 existing share.
So, SJS's price decreased respectively
from 728,000 VND per share down to
190,000 VND per share. The loss
belonged to individual investors who had
no internal source. When they wanted to
buy, they could not find a source because
the big investors have acquired all, and
when they wanted to sell, they could not
either because of the market's saturation.
2.2. The risk factors from investors [2]
Risk of portfolio management capabilities
in general and risk of risk management
itself in particular require a lot of effort,
knowledge, experience, etc. Before
deciding to invest in any securities,
investors have to collect, analyze, monitor
and handle information about the
company. An individual investor can not
do all those things effectively, so they
easily mistake and miss good investment
opportunities or decide to invest in the
wrong securities.

a. Risk of wrong estimated value

Estimating net value of shares is not
simple. Different people may make totaly
different estimations. Some are too
pessimistic, others might be too optimistic.
For optimistic people, the estimated value
will lead to buy securities much more
expensive than their real value. And if the

share price fall in real value after that, the

loss is theirs surely.

access to the executive director of that

company.

In March and April 2013, the stock market

was still being in the context of bad
information about macroeconomic such
as continuous increase of inflation and the
prices of some essential commodities.
Business situation of listed companies
also became difficult. Up to 1/3 of
securities companies reported losses.

- When investors recognize that they are

holding stocks having signs of scams,
investors should recheck carefully to
continue or to stop investing on them.

b. Psychological risk
Vietnamese investors are still influenced
by strong "herd mentality." Investors can
be agitated easily by the general trend of
the market. When it might be time for
buying, they buy a lot. And other times,
they sell too much when they should not.
When the stock market has very-high
risks because of being in mania state
(prices are highly inflated), investors
always scramble to buy as result of the
herd mentality, and then they make a
huge loss when the market goes down.
Conversely, when the market is low
compared to its real value, the investors
are afraid to buy. This mentality not only
affects small investors, but also affect
investment funds and large enterprises.

3. A few notes to help individual

investors to manage risks on stock
market[3]

- Develop the ability to analyze and gather

information, and to determine value of
shares, also to avoid being agitated by the
general trend of the market.

3.2. About rinks

business operation

from

companies'

- Diversify stocks, so if stock of a

company has problems because of the
company's operation, the other stocks will
get the loss back.
- Select stocks of strong and low-risk
companies.

3.3. About risks from market volatility

- Have a vision for long-term investment
to be able to accept temporary losses in
the short term, as long as the expected
profit in the long term still goes well.
- Do not use big leverage to be able to
stay
with
short-term
fluctuations.
Conversely, investors should have cash
reserves, so that every time the stock
price goes down in short term, they still
can use the opportunities to buy more
good stocks.

3.1. About fraud risk in the market

- Keep away from small, less information,
less interest stocks, unless you have

- Investors can combine new stocks to

reduce the volatility of their portfolio, and
increase short-term stability.

- Diversify stocks to reduce the risk of

market fluctuations.

understand the company and its value

before investing .

3.4. About risks from information

3.7. About psychological risks

- Similar to phishing risk, investors should

avoid
stocks
lacking
of
reliable
information, particularly small stocks.

- Imagine potential situations that may

occur and how to handle these situations
to avoid confusion and being passive.

- Take effort, time and money for

collecting information.

- Investors need to have specific

strategies and clear procedures, and do
not invest by personal emotion.

3.5. About
capabilities

risks

from

management

- Investors need to have reliable people to

help in investment management.
- If investors are not confident in their
investment decisions, they should entrust
that
to
an
reputed
investment
organization.
- Improve knowledge on finance and
investment.

3.6. About
estimation

risks from wrong

value-

- Investors need to accumulate analyzing

experience, or base on advise of those
who have expertise in this.
- Analysis value of a stock should be
based on reasonable models and reliable
sources.
- With new candidates in the portfolio,
investors should have enough time to
analyze (at least a month), to be able to

4. Forecasting some risks

investors may face in the future[4]

that

First, although the flow of money into the

market is very strong and stock prices are
rising with a high level, the massive
buying of speculative investors may face
two types of risk: Real state of listed
companies (many listed companies have
not escaped the difficult period since
2013) and the potential problems behind
this strong recovery (in the context of a
series of good news came out and the
stock sharp rising from early 2014) is this
period is an opportunity for those who
hold weak stocks to discharge.
Second, the excitement of investors since
early March 2014 may be just for short
time, but this has a significant impact on
the stability of the cash flow going into the
stock market.
Third, investors are easily influenced by
the market trend, which creates the
phenomenon of amplification. This
phenomenon makes the stock market
easily create a spectacular hike and also

sudden plunge, which will increase the

risk of bias in the estimates of investors.
Fourth, the State Securities Commission
let listed companies easily raise capital,
which will cause investors' right might not
be guaranteed.
Thus, although the market has prospered
but it always has potential risks and
investors, especially individual investors,
need to be more and more careful with
every investment decision.

References
[1] Nguyen Minh Kieu (2009), Quan tri rui
ro tai chinh, Ha Noi.
[2] Article "Da tang cua thi truong chung
khoan an chua nhieu rui ro" (01/09/2014),
http://tinnhanhchungkhoan.vn/GL/N/CHE
EEI/da-tang-cua-thi-truong-an-chua-nhieu
-rui-ro.html.
[3] Article "Thi truong chung khoan 4-1:
Rui ro cua nha dau tu ngan han",
http://ketoan.org/thi-truong-chung-khoan4-1-rui-ro-voi-nha-dau-tu-ngan-han.html.
[4] Article "Rui ro tu thi truong chung
khoan chau A", http://nhipcaudautu.vn/ar
ticle.aspx?id=7321-rui-ro-tu-thi-truong-chu
ng-khoan-chau-a.