Surge in VN Index
Normally, when the stock market rises sharply, people always notice the presence of closely related financial industrial groups, such are banks and securities companies. However, at present, many investors holding stocks of these two industrial groups are facing an unusual dilemma as they wonder which of these two difficult choices to make. Either they choose to sell or they cut loose and switch to another industrial group, or even continue to rake up losses while waiting for a completely new wave to arise.
Mr. M, an investor from Ho Chi Minh City, decided to put all his money into bank stocks when the Covid-19 pandemic suddenly broke out in July, under the expectation that bank stocks were a safe option, after their excellent performance in 2020. The portfolio that Mr. M is currently holding includes bank codes such as MBB (Military) and LPB (LienVietPostBank), STB (Sacombank), and EIB (Eximbank). However, at the present time, when the VN Index is above the historical mark of 1,450 points, his portfolio is still in the red, with negative profit of more than 30% due to using all loans or full margin.
The fact that the bank groups traded cluttered, in context of a prosperous stock market, made investors very surprised. Even for many investors, this was an irrational phenomenon, especially when most of the listed banks had announced third-quarter business results with positive numbers, despite the outbreak of the pandemic. According to statistics, the profits of 27 listed banks as announced in their financial statements in the third quarter, showed that most banks had achieved positive profit growth. Notably, there were six banks reporting a profit of over VND 10,000 bn after nine months, while in the same period last year, only a few banks had recorded negative growth in the third quarter, such as BIDV (BID), VPBank (VPB) and STB.
In the same situation as the bank group, the securities group benefited the most from the boom in scores, especially the liquidity in the stock market. According to statistics, the average transaction value per day in the third quarter reached USD 1.1 bn, up 316%. This number continued to increase strongly in November with a record of nearly VND 52,000 bn in the trading session on 3 November. However, the stocks of securities companies were almost static, even falling sharply despite receiving good information about the third quarter and nine-month business results of 2021.
Stocks rise sharply
When the VN Index peaked at 1,450 points in the trading session on 3 November, the market had three stocks with prices above VND 200,000 per share, all of which were of real estate, or related industries, including L14 (Licogi 14), VEF (VAFEC) and THD (Thaiholdings). All three of these codes have a starting point much lower than the current fake level. For example, VEF from the price of VND 50,000 per share in early 2021 increased to VND 260,000 per share, L14 from the price below VND 50,000 increased to VND 264,000 per share, and THD from the price of VND 100,000 per share went upto VND 230,000 per share.
Not just for big stocks, but the wave in real estate also helped many small and medium sized stocks to rise sharply in the last one month. For example, the code DIG (DIC Corp) once increased above the mark of VND 62,000 per share. If calculated from the price of VND 22,000 per share in the second half of July, this stock has nearly tripled in a period of just three months. Similar was the case of KBC (Kinh Bac), KDH (Khang Dien), IDC (Ideco), and NLG (Nam Long).
Surprisingly, despite the strong increase, the business results of these enterprises went down, even to negative profit in the third quarter. For example, DIG profit after tax in this period reached VND 42.2 bn, a sharp decrease of 44%, and accumulated nine months only reached VND 139 bn, equivalent to 9% of the whole year plan. The third quarter profit of KDH, NLG and IDC also dropped significantly, even to a loss of VND 59 bn like in the case of KBC. The reason why the business results of real estate businesses went down in the third quarter was due to the impact of the Covid-19 pandemic, as many investors were unable to hold sales events for many projects. For example, NLG had to postpone the sale of the Mizuki project and hand over the products of the Akari project.
Speculative cash flow
According to analysts, cash flows into the real estate group with the expectation of a recovery when the economy enters a new normal phase from the fourth quarter, which is also the peak year-end business season for real estate businesses. However, the fact that the group of real estate stocks has increased by two to three times in recent days has caused this group of stocks to enter a high risk area.
According to Mr. Nguyen The Minh, director of Yuanta Securities Vietnam, except for businesses with capital potential, small real estate businesses are essentially short of money. Although profit is reported, the business cash flow is heavily negative, and liquidity is scarce, and capital needs to be boosted. Capital comes from two main sources, namely, bank loans and bonds. While it is difficult for banks to lend real estate at this time, and bond issuance is also being tightened by the Ministry of Finance.
Mr. Minh believes that currently, although the economic recovery program of VND 800,000 bn for 2022 until 2023 has been submitted to the Government for purpose of public investment, the disbursement rate is still very low. According to him, the Covid-19 pandemic has greatly affected the real estate industry, and it is forecast that it will not be able to recover until 2022, therefore, the phenomenon of real estate stock prices rising hot is mainly speculative.
Mr. Minh’s thoughts were partly reflected in the trading session on 3 November, when real estate stocks dropped sharply. In this session, many investor accounts evaporated by 14% to 40%, due to buying at the ceiling price in the morning session and stocks hitting the floor in the afternoon session. The loss even increased when many codes continued to drop to the floor in the next following sessions.
The strong cash flow in the stock market in recent sessions has many potential risks, and not just for the real estate industry alone. According to a securities expert, the main driving force that helped the VN Index to set records high came from cash flow of F0 investors. When production and businesses start to stagnate, capital flow that needs to find new investment opportunities goes in securities. However, when the economy fully reopens again, this speculative capital flow will quickly withdraw from the securities market and move into production activities.
