|Fluctuation of prices influences individual investors’ mentality. (Photo: T.C)|
While the Viet Nam stock market is attracting more and more foreign investors, Le Dat Chi, M.A., from the Ho Chi Minh City Economic University commented that stock prices in Viet Nam are in a period marked by high fluctuation as a result of many small investors still in the trend of making public investments.
These small investors are typically using the Price per Earnings index (PE) and Price per Book Value index (PBV) as their only analyzing tools for stock prices. PE and PBV each contain listed companies outlooks for making investment decisions.
However, since these indexes represent the primary tools of market analysis, with little else to draw from, investors are deprived of broader market speculations, which could prove costly in the long run.
Some features of the market
World Bank, IFC, and Morgan Stanley Capital International have ranked Viet Nam into the third group among 3 new upstart market groups with some remarkable features.
This is a market with high fluctuating stock prices, which makes it a high risk investment. While the risks are high, so are the rewards, as investors have the opportunity to make higher profits than they could expect in the markets of developed countries.
While the market is short of forecasting and analyzing tools, investors in the new upstart market that it should be invested into stocks with low PE or PBV.
|Investors in the new upstart market as Viet Nam should be invested into stocks with low PE or PBV. (Photo: T.C)|
But, because small investors are limited by their financial capabilities and affected more by losses, this is still a market that belongs to the top listed companies and the larger investors who can afford the risks.
When you couple the restrictions acting as barriers to the world market along with the previously stated reasons for the market fluctuations, there is currently a great deal of uncertainty in the Viet Nam stock market.
If stock prices and long term outlooks are difficult to forecast, then investments will be shaky until the market can provide greater stability.
Investment Ability in Viet Nam
Most industry analysts agree that longer term investments in upstart markets have the highest degree of success, as nationally established industries expand into global trade markets.
Also, long term investors are able to ride out periods of fluctuation, whether brief or extended. This is necessary for overall investment profitability in new and developing markets.
However, market fluctuations are not necessarily bad for short term investors.
An example of this can be seen in the wake of the price fluctuations of CII stocks of the Ho Chi Minh City Infrastructure Investment Joint-Stock Company, or SJS stocks of the Song Da Urban & Industrial Zone Development and Investment Joint-Stock Company (Sudico) in the Viet Nam stock market.
On the first day of listing (6 July 2006), SJS stock reached the price of VND100,000. At the same time, the PE index of SJS reached 3.02 in a bulletin regarding the Ho Chi Minh City Securities Trading Center (HSTC). That is a low PE index compared with the average level of the market, indicating that the market had incorrectly valued the SJS stock price, making the situation ripe for investor profits.
After a little more than three months, SJS stocks obtained the price of VND256,000 until the end of October. That means that investors stood to make 150% profit of their SJS stock investment, an abnormal circumstance in the ebb and flow of the average market.
|Small investors tend to follow the “herd instinct”. (Photo: T.C)|
So, what does this problem of price increasing and rapid fluctuations tell us about the market? The simple answer is that the market is adjusting to incorrectly valued stocks which can benefit some investors in the short term, but will leave long term investors cautious.
This situation is more of a problem for the small investors who are hurt more by a lack of practical market activity than larger investors are. Pair that with the fact that there are no laws to punish those who spread false information.
Thus, as the small investors tend to follow the “herd instinct”, a few bad investment decisions could adversely affect the growth of the 6 year old Viet Nam stock market into the future.
As the market continues to add companies to its listing, there will be an influx of information, making it more difficult for small investors to navigate all of the available facts. Once again, small investors are put at the disadvantage next to their larger counterparts.
However, the result of all this growing market uncertainty has produced the interest and arrival of a variety of international investment consultant firms, make up the market-makers.
This could produce the positive outcome of helping small investors make wiser decisions with their limited funds, bring about more international investments, stabilize the market, and provide more service availability to Vietnamese investors, large or small, in the future.
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