The summer has just begun but Bao Viet Securities Company’s trading floor is oppressively hot. Air-conditioners, though running at full capacity, are not able to cool down the hundred people who are crammed in the small room and some rush out to get fresh air.
The stock market is hot, too. Green lights flash along the rows of electric boards in the room, indicating that all share prices are up. People smile, shake hands, call each others’ names and go drinking.
The VN-Index has doubled within the past four months, reaching an all-time high of 632 points a fortnight ago. Although the market slipped off the highs during the last several sessions, few investors are disheartened.
The incredibly high returns on stock investment are drawing in tens of thousands of investors, who pack securities companies’ trading floors every morning.
The situation now is similar to five years ago, when the stock market debuted, but a striking contrast to the past three years when trading floors were almost empty after the VN-Index bottomed out in 2003.
The renewed investor interest creates mixed sentiment. The State Securities Commission has cautioned banks against lending to investors who use shares as collateral.
Some warn that investors should exercise caution as prices can easily drop, while others say it is a good opportunity to develop Vietnam’s fledgling capital market.
Both sides have their own arguments. Some analysts say investors are motivated by speculation that shares will probably sell at higher prices later, rather than looking at the bottom line and underlying profitability.
Tran Dac Sinh, director of the Ho Chi Minh City Securities Trading Centre, wrote recently that the ramping up of share prices in the market does not reflect the value of most companies. The profitability of listed companies last year remained the same as the previous year.
This is an obvious when one looks at the fledgling Vietnamese stock market. Several companies such as Bach Tuyet Cotton Company (BBT) and Binh Trieu Construction and Engineering Company (BTC) are sometimes seen as the blue chip stocks in the market, although their business is not always so good.
Sinh points to the fact that investors are earning quick money and that many “close their eyes” to buy the same stocks they see others buy rather than scrutinising the value of listed companies and making their own evaluation of the company’s profit potential.
“This is dangerous. If the prices in the market fall, investors will face the danger of loss and bankruptcy,” he said.
Sinh refers to this buying frenzy as the “herd mentality”, a judgment echoed by Bui Quang Hoan, an individual investor.
Hoan estimates that two-thirds of the 60,000 accounts currently operating in the market belong to new investors who have only the most basic understanding of investment principles.
“There are many new faces,” Hoan said.
He says new investors often show their inexperience, citing a trading session in which new investors placed orders of up to half a million shares in Bach Tuyet Cotton Company, while experienced investors like Hoan looked on, knowing that only some 2,000 shares of this kind are traded per session.
Hoan said he had seen a lot of inexperienced investors, giving the example of a woman he met who had brought her daughter to the trading floor to buy stocks, telling him that the girl was an excellent student at high school and could help purchase profitable stocks.
The woman said her family wanted to invest in the stock market as she heard other people were making excellent profits from securities investment.
Hoan advised her to send the girl back to school and learn to invest before deciding to buy any shares.
The number of inexperienced investors is not small. They are students, housewives and business people who come to the stock market for the first time after hearing rumours about huge profits brought in by securities investment.
Nguyen Quang Vinh, director of the Bao Viet Securities Company, said he asked an investor who opened an account with his company for the first time if she knew what company the shares she was buying belonged to.
“No,” the woman replied.
“So why did you buy it?” Vinh asked.
“I saw a lot of other people bought the shares, so I did too. And other buyers are making a lot of profit so it is certain I will make a profit too,” she said.
Vinh says it is a worry that the number of these investors are increasing, because they are pushing share prices beyond their actual value.
Hoan said it was not surprising that investors had seen the market double in value since the beginning of the year.
“In general, the stock market in Vietnam is still small and it has not gone up so much over the last three years. It is now time for it to boom,” Hoan said.
The VN-Index reached a peak of 571 points after just one year of operation but it hit rock bottom in 2003 when the index plunged to 139 points. Since then, the market ran sluggishly and the index was only at 304 points in the early days of this year.
Analysts attributed the market’s lacklustre performance to the attractive profits brought in by the booming real estate market. Between 2001 and 2005, property prices skyrocketed, pulling in a huge number of investors who considered real estate investment to be a safe home for their savings.
Nevertheless, the real estate market has been dormant over the past year and prices have fallen, encouraging investors to pile into the stock market.
As demand soared, with the number of registered accounts tripling to reach some 60,000, share prices showed a tendency to spiral up due to their limited supply of stocks in a market with only 36 listed companies and a market capitalisation of $1.9 billion.
Gold, another traditional safe haven for Vietnamese investors, has also waned in popularity due to high prices. As a result, cash is pouring into the stock market, particularly after US investment bank Merrill Lynch issued a bullish report on Vietnam.
The report called Vietnam a 10-year buy, saying it was a last-frontier for investors and one of the emerging economies in the region that would demand serious investor attention over the next decade.
“Buy equity exposure now. Buy now and tuck the investment away for 10 years. In 2016, we can come back to discuss compound returns,” the report stated.
White Spencer, chief equity strategist at Merrill Lynch, the author of the report, said he was not over-optimistic, and that the promise that Vietnam would deliver was underpinned by the nation’s pace of economic growth, policy reform and conspicuous consumption.
He said the nascent Vietnamese equities market was likely to be one of the fastest growing as more equitisation comes through.
Such overall optimism represents a “good opportunity” to develop the stock market, said Hoan, who has been involved in stock trading since the securities centre’s inception.
“Rising investor interest is a good catalyst to boost equitisation,” Hoan said.
During the market’s trough between 2002 and 2004, few companies, except for cable producer Sacom and the Refrigeration and Engineering Company, issued shares to raise funds for investment as investor interest was so low.
However, as the market recently picked up, more than 10 out of 35 listed companies have issued more shares to raise capital rather than seeking bank loans. Even Bach Tuyet Cotton Company succeeded in raising capital through a share issue.
Vietcombank Securities Company’s bulletins have said that the thirst for stock will not be quenched unless supplies increase through new listings, additional share issues of listed companies and a reduction of state shares in listed companies.
Fortunately, new five companies, including Sacombank and Sudico, have recently applied to list. Of them, the long-awaited listing of Sacombank is expected raise the market capitalisation to more than $2.3bn.
However, as local investor interest continues to rise, compounded by growing foreign investor attention following the Merrill Lynch report, there are still limited supplies of shares.
The trading rooms’ air-conditioners will be pushed to their limits, as the next few months promise be the hottest of the year.

Source: Vietnam Investment Review, No.706-2006