Concerns rise over stock market climbing to record highs

Talkshow “Macro-economy and the stock market” is held by Kinh Te va Du Bao (Economics and Forecasts) magazine on June 29. (Photo: VietnamPlus)

Hanoi (VNA) – After hitting a low point in March and April last year, Vietnam’s stock market has surged and has continually recorded new historical highs.

The benchmark VN-Index has increased by 23.4 percent since the beginning of this year, causing some investors and market experts to worry about a market bubble.

Last year saw phenomenal market growth and the first six months of this year have not been any different, with stock indices at 20-year high levels, while market liquidity in some sessions have reached 1.5 billion USD. This is the view of Nguyen Son, Cchairman of the State Securities Commission’s (SSC) Vietnam Security Depository, as told to the ‘Macro-economy and the stock market’ talk show, held by Kinh Te va Du Bao (Economics and Forecasts) magazine on June 29.

The rally is in line with the country’s containment of the pandemic in 2020 and for the first few months of 2021 and with economic growth which was lower than expected but higher compared to other economies in the region, Son said.

Current capital flows are quite abundant, with relatively low interest rates, he continued, and this will last until the end of the year and beyond. The US Federal Reserve (Fed)'s signal is not to raise the basic interest rate, meaning that the State Bank of Vietnam will also keep the interest rate unchanged for a while longer, he added.

Nguyen Son, Chairman of the State Securities Commission (SSC)'s Vietnam Security Depository, speaks during the “Macro-economy and the stock market” talk show held on June 29. (Photo: VietnamPlus)

“That helps keep a steady level of low-interest capital to flow into many sectors of the market.”

“The loan balance for securities activities of the whole banking system is low. And the margin lending managed by the State Securities Commission of Vietnam (SSC) is also under control. So I don’t think there is a bubble in the stock market,” Son said.

Nguyen Tri Hieu, a finance and banking expert, meanwhile took a more cautious approach and voiced concern over the abundant capital flow in the securities market which has yet to meaningfully reach local businesses and producers.

It is very risky and if it is not taken under control, it is likely to trigger a bubble, posing significant risks to the economy, according to Hieu.

He said low interest rates mean many people will pour money into the stock market, instead of putting it in savings. The current stock market does not reflect the health of the economy, he explained. Vietnam’s GDP advanced by only 2.91 percent last year and by 5.64 percent in the first half of this year. GDP growth has slowed due to the impact of COVID-19 but the benchmark VN-Index again hit a new record of 1,405 points on June 28.

“This growth is too high. So to me, there is a possibility of a stock-market bubble.” Hieu said.

Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV), pointed to a strong bond between macro-economic factors and the stock market, saying the stock market is a vital channel for capital in the economy. In 2015, the market contributed only 13 – 14 percent of total social funds for development and investment. Today, it accounts for around 20 percent.

Illustrative photo. (Source: VNA)

“For a long time, the stock market has remained a barometer of the economy, with investors evaluating the performance of listed companies and setting the corresponding prices of shares,” he said. Stock prices usually predict economic growth for the following 4 - 5 months, he noted, adding that the stock market has become an important investment channel for enterprises and citizens, especially during the pandemic.

At the seminar, experts shared a concern that 90 - 95 percent of investors in the stock market are unprofessional individuals who are driven by herd mentality and have a high financial leverage ratio. As the market corrects, the experts believe that it is likely these investors will overreact. On the other hand, some businesses are taking advantage of market opportunities to ‘polish’ their business results by issuing stocks or bonds.

Over time, the VN-Index may drop 7 – 10 percent after peaking above 1,400 points, Luc said, urging investors to stay calm as the correction will be necessary to keep the stock market healthy. Not remaining calm easily leads to failure, he added./.