Illustrative image. (Source: cafef.vn) Hanoi (VNS/VNA) - The derivatives market has grown strongly over the lastthree months as investors switch from stocks to derivatives to avoid short-termrisks on the stock market.
SinceApril 9 when the benchmark VN Index touched its all-time high of 1,204.33points, it has lost 23.8 percent to end at 917.51 points on July 6.
Thatwas also the lowest level for the VN Index since December 15. After athree-month decline, the VN Index has turned from one of the world’sbest-performing indices to among the worst-performing.
Thedecline of the Vietnamese stock market has been attributed to the volatility ofglobal stocks, which have been affected by rising trade tensions between the USand China, and the Federal Reserves’ interest rate hikes.
Thesefactors have triggered strong foreign sell-offs across the world’s emerging andfrontier markets, pulling local stocks down and having negative impacts on domesticinvestor confidence in the markets’ short-term prospects.
As aresult, investors have begun looking for opportunities in the derivativesmarkets, starting with four futures contracts that are based on the blue-chipVN30 Index.
Accordingto the Hanoi Stock Exchange, the trading volume and value of VN30 futures stoodat 11,135 contracts worth 1.3 trillion VND (57.2 million USD) on April 9.
Thefigures had risen significantly in the last three months to 164,872 contractsworth 14.5 trillion VND (638.7 million USD) on July 6.
Sinceits official launch in August 2017, the trading volume of the derivativesmarket had gained by almost ten times from 58,444 contracts worth 4.36 trillionVND in August 2017 to 563,500 contracts worth 61.9 trillion VND in April 2018.
Thenumber tripled in May (1.64 million contracts worth 162.5 trillion VND) andnearly quadrupled in June (1.98 million contracts worth 193.4 trillion VND).Nearly 724,500 contracts worth 64.8 trillion VND were exchanged in the firstweek of July.
In thepast two weeks, the average daily trading liquidity on the derivatives marketstood at around 11 trillion VND worth of contracts.
Comparedto the stock market, trading liquidity has fallen to between 3-4 trillion VNDfrom 8-9 trillion VND in the past two months as investors remain concernedabout potential risks that could dampen the market.
Accordingto Nguyen Viet Duc, deputy director of the individual investor department at MBSecurities Company, the derivatives market has emerged as an attractive,profitable investment channel thanks to its intraday selling and buying and lowmargin lending rate (investors are required to deposit only 10 percent of thecontract value). Compared to the stock market, the margin lending rate thatinvestors are required to deposit is at least 50 percent of the transactionvalue.
Investorscan earn profits from derivatives trading because they can sell futurescontracts whenever they want, depending on the market’s expectations, he said,adding that is different from the stock market where investors can only makeprofits after stocks arrive at their accounts three days after being bought andthe stock prices go up.
Investorscan make precautionary decisions for their stocks on the primary market byselling futures contracts on the derivatives market, thus offsetting the losseswhen the stock market declines, Duc said.
However,derivatives futures should be a way to help investors minimise potential riskson the stock market, especially individual investors, not making short-termprofits, he said.
TaThanh Thao, director of individual investor project 2 at Saigon Securities Inc,said that derivatives products are yet to play their role as risk-hedging toolsbecause individual investors still see the new products a way to makeshort-term profits.
“MostVietnamese individual investors on the derivatives market trade on the movementof the stock market. Only a few professional investors, most of whom are fundsand institutions, see derivatives as a risk-hedging tool.”
Thevolatile primary market has created a bumpy derivatives market at the sametime, which is making it become a new attractive investment channel, he said,adding that investors will switch to derivatives products when they seepotential difficulties with the primary market.-VNS/VNA
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