Concerns over low liquidity in stock market

Although the VN Index has returned to an attractive level compared to previous sessions, issues such as low-levels of liquidity and corporate bonds risks still need to be resolved for the market to once again gain momentum. 
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Speaking with Saigon Investment, Mr. THAI HUU CONG, Investment Strategist at KB Securities Vietnam Company (KBSV), said that the cash flow in the stock market will continue to remain low unless these issues are resolved.

JOURNALIST: - Sir, in your opinion, what is the cause of low liquidity in the stock market?

Mr. THAI HUU CONG: - The liquidity in the stock market is currently maintained at a relatively low level. The trading volume of the VN Index only averaged 12 billion shares per month, down approximately 30 percent compared to the second half of 2021. If we look at the monthly chart, we can see that the trading value of the VN Index in the last 3 months of decline has only averaged VND 13,300 bln per session, and the trading volume also maintained below the average MA20. This shows the cautious sentiment of investors due to concerns that the market may continue to correct down to deeper support areas.

In fact, a lot of investors are holding cash and are waiting for clearer signs about bottom forming before deciding to disburse. Meanwhile, the price reduction took place in most of the industry groups, causing the investors who owned the losing stocks to limit the restructuring of their portfolios to other stocks as well. The fact that investors chose to freeze assets is also one of the reasons for low market liquidity. According to statistics, at the end of September 2022, the deposit balance of investors in securities accounts was about VND 72,500 bln, an increase of VND 2,400 bln compared to the end of the second quarter of 2022. This amount of money is very large compared to the current stock market size.

- Sir, it is a fact that almost everyone realizes that the stock price level has dropped, but the bottom-fishing cash flow has not yet participated, even showing signs of withdrawal in the deep correction sessions. What do you think about this phenomenon?

- As of the trading session on November 4, the VN Index is currently trading around P/E trailing 10.4 times, equivalent to the bottom during the Covid-19 pandemic at the end of the first quarter of 2020. The market deep decline reflected risks related to inflation, exchange rate, interest rate, and especially instability of the corporate bonds market. However, in the context that Vietnam's long-term macroeconomic growth is guaranteed, along with the profit growth of listed companies, I think long-term investment opportunities appear quite clearly.

However, in the short term, domestic investor sentiment is still strongly influenced by information, wrong handling of enterprises, and fluctuation in the corporate bonds market. Money flow can only really come back strongly if this factor cools down and there are no new developments in the near future. If compared with historical data, during periods of high interest rates like today, many investors are worried that P/E may drop to 7.3 times before bottoming, equivalent to a reduction of approximately 30 percent. Besides, domestic macro risks such as bank bad debts, corporate bonds, or external factors such as FED rate hikes, risk of global economic recession, and the ongoing war between Russia and Ukraine, make bottom-fishing more conservative.

- Sir, it is said that the difficult stock market makes capital flow to less risky investment channels such as credit channels. However, banks are facing difficulties in attracting capital. According to your observation, where is the cash flow on the stock market currently flowing?

- In addition to the element of money freezing in the investor account, as I just mentioned, the cash flow was also net withdrawn from the market. At the present time, we can see that money supply growth is quite slow compared to domestic credit growth due to the proactive regulation from the State Bank of Vietnam.

State budget revenue grew positively, exceeding the estimated schedule while state budget expenditures were controlled and lower than planned, making the budget balance as of August 15 in high surplus, reaching VND 247,601 bln. Besides, the fact that the State Bank of Vietnam maintained a net sale of foreign currencies caused a large amount of Vietnamese dong cash flow to be net withdrawn, causing difficulties in the liquidity of the economy, including the banking system and the stock market.

- Sir, from the current difficult situation of the stock market, can you make a judgment about the cash flow in the stock market in coming time?

- Currently, the two major capital mobilization markets for state-owned enterprises, namely, credit and corporate bonds issuances are rather congested. More worrisome is the fact that several businesses are under great pressure for cash flow when the amount of corporate bonds issued in previous years is approaching maturity.

Currently, the total value of corporate bonds due for payment in 2022 is VND 144,000 bln, while for 2023 it stands at VND 230,000 bln. This number of corporate bonds set to mature are mostly concentrated in the last month of this year and the second half of 2023. Not only the stock market but also the general economy will inevitably face a large amount of money withdrawal from the economy. The reason is that businesses have to collect money to ensure debt repayment obligations. Therefore, in this context, the cash flow in the stock market in coming time is forecast to continue to remain at a low level.

- Thank you very much.

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