An employee of SSI Securities Corporation helps an investor with administrative paper. (Photo: courtesy of the company) Securities stocks are always the most sensitive group to the fluctuations ofthe general market. Due to the deep fall of the market over the past month, themarket prices of securities stocks have plummeted by 30-40%.
The losses were even larger than the decline when the market hit a bottomduring the outbreak of the COVID-19 pandemic. According to Agribank SecuritiesCompany (Agriseco), the group of securities stocks has very high volatility andis linked with the stock market’s movements that directly affect businessactivities.
The stock market recently dropped sharply in terms of both liquidity and value,so the significant losses of securities stocks prices were expected.
In the short term, Agriseco believes that the selling force still weighs on thegroup and shows no sign of ceasing, therefore, it is still ambiguous todetermine the bottom of the group at this time. However, when the market showssigns of recovery, the securities group may have a better bounce than othergroups. The price to book (P/B) ratio of this group is currently around 1x.Although the ratio is much lower than previous periods, it is a suitable levelwhen the overall market is deteriorating.
With the volatility of the stock market in the third quarter, it is notdifficult to forecast that all activities of securities companies will beaffected.
Brokerage revenue may drop dramatically due to the overall decline in bothliquidity and value. The average transaction value in the third quarter wasonly VNĐ16 trillion per session (658 million USD), a nearly 40% decrease overthe same period last year. Some sessions even recorded the average transactionvalue of only 10 trillion VND.
Gross profit plunged due to rising competition, higher commissions paid tobrokers, while transaction fees tend to be lower and lower.
Margin lending, which is considered the main source of income for securitiescompanies, also shrunk. Margin debt balance of the whole market has decreasedby 40% from the peak and is expected to continue to go down in the fourthquarter. The sharp decline of the market since mid-September until now has forcedmany securities companies to sell mortgages to recover loans when the marginratio exceeds the prescribed threshold, making investors more cautious in usingmargin.
The financial advisory segment (IB) was adversely affected by the market’smovements. In particular, securities companies providing services associatedwith corporate bond issuance will be severely affected by recent developments.
Proprietary activities, including both stocks and bonds, faced challenges inthe third quarter. Many companies may face the risk of losses in proprietarytrading if they do not exit their positions in time when the VN-Index fell bynearly 6% in the third quarter. In September alone, the benchmark index lostnearly 12%.
While in the third quarter of last year, securities companies raced to reportrecord profits, this year, many companies were unable to avoid losses or sharpfalls in profits.
This year’s macro environment clearly does not support the business activitiesof securities companies when inflation and interest rates increase, while cashflows are withdrawn to serve production and business activities. Despite beingpriced at quite attractive levels because most of the leading stocks such asSSI Securities Corporation (SSI), Viet Capital Securities (VCI), and Ho ChiMinh City Securities Corporation (HCM) have dipped 70% from their peaks, thisstock group was still under a sell-off force in recent declines.
Bui Van Huy, director of the HCM City branch of DSC Securities Corporation,told tinnhanhchungkhoan.vn that the valuation of the securities stock group wasnow much more reasonable and could be seen as cheap when it had been halved andtripled from the top. Currently, the P/B of the securities industry was onlyabout 1.1 - 1.2 times and the price per earnings ratio (P/E) was only about 8 -9 times.
However, the industry’s P/B is still higher than the bottom-making period inMarch 2020, when the securities industry P/B was below 1x.
According to Bloomberg, the Vietnamese stocks fell to the lowest level innearly 2 years as selling pressure weighed and over took the market amidconcerns about interest rate hikes. The VN-Index fell more than 18% in the pastmonth, the biggest drop among stock indices globally.
As the market is forecast to confront many difficulties, the profit prospectsof securities companies in the near future is hardly positive. Therefore, manyexperts agree that an attractive valuation is not necessarily a confirmation ofbottom formation.
Nguyen Anh Khoa, head of Analysis and Investment Consulting Department ofAgriseco Securities Company, said that although the group of securities stockshad decreased greatly, opportunities would open up for the securities group ifthe market regains momentum. However, with many difficulties ahead, it wasnecessary to be very selective about securities companies to invest in thecurrent period.
"Securities stocks are already cheap, but it is unlikely the bottom,"Khoa concluded./.
VNA
