Stock Markets On The Go
By Phan Dung Khanh (*)
Since the start of 2012, stock markets have outperformed investment channels such as gold, forex and realty trading, as well as bank deposits
The VN-Index and HNX-Index have increased by 35.49% and 38.36% from those recorded at the start of this year and boasted the most impressive performance in the world. Meanwhile, bank deposits and foreign exchange trading have suffered dwindling returns; gold and realty products have even witnessed falling prices.
The 100 securities codes with the best performances since January 2012 have experienced price increases of 100-600%. The top 20 codes all have returns of at least 150%. Most of the firms whose codes perform well are not branded enterprises; some have even been in the red. Why so?
Behind the price hike
Shares issued by a renowned company are likely to perform well. However, less famous firms can also see their shares fetch higher prices. Ultimately, share prices not only depend on a company’s cash flows, but also hinge on investors’ instincts and, to some extent, manipulation tactics.
From 2007, when the economic crisis started, to 2011, gold prices were high. Realty prices picked up in 2007-2009 and have frozen since then. The local currency was on the slide against the greenback, whose value jumped from VND15,000-17,000/US dollar to VND22,000/US dollar in late 2011. Deposit interest rates also shot up and, when there is an implicit agreement between depositors and banks, could surpass the ceiling imposed. Compared with these lucrative alternatives, stock markets did not fare well in 2007-2011.
However, since late 2011, the exchange rate has been more stable, with the dong appreciating at times, deposit interest rates have fallen and gold has been less expensive. Consequently, cash has flowed into the bourses again as returns rise.
High achievers’ success demystified
Most of the top 100 performers fetch prices below their face values and have relatively good liquidity. These codes experienced periods of drastic price fluctuations (BMC) or are related to codes with such a performance (KSA).
The initially low prices of these shares appeal to investors, including those with limited cash. Such shares come with high short-term returns and are unlikely to see their prices ebbing further. This combination of low costs and good liquidity has proven irresistible to many investors.
Besides, the VN-Index was in the doldrums for so long (it peaked on March 12, 2007), so the recent market recovery has fueled the inflow of hot money. When short-term gains are the priority, investors will opt for shares with rising prices instead of choosing listed companies with solid fundamentals.
(*) Head of Investment Analysis and Consultancy, Kim Eng Vietnam Securities Co.