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Monday, June 24, 2024

Will the struggling bond market prompt money to shift to stocks?

By Trieu Duong

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The stock market underwent a drastic correction in the last two sessions of the week, with the VN-Index falling from the peak of 1,525 points to 1,482 points. As the corporate bond market has been marred by the recent revelations of illegal corporate debt issues, what are the impacts that the stock market can withstand?

Sell-off driven by rumors

The prosecution of the case and the accused related to the violations of some leaders at FLC Group and Tan Hoang Minh led to a series of rumors last week, creating a sell-off trend in the market, particularly of those stocks related to such rumors, including real estate stocks, GEX, KBC or HSG.

In times of uncertainty, rumors make investors more confused and anxious, and they easily let their emotions govern their decisions without verifying information, especially when the cases of FLC and Tan Hoang Minh also started as rumors.

However, the sell-off trend driven by rumors is expected to end soon, once investors realize unfounded rumors have led to wrong decisions, whereby cash flows may return as soon as rumors are brushed off, especially after the recent drop, when quite a few stocks have returned to the attractive price range.

Citing HSG as an example, their representative denied the rumor about an inspection at the group, which caused damages to its investors. The other enterprises will probably do the same soon. As for management agencies, Lieutenant General To An Xo said the Ministry of Public Security would investigate and handle any baseless rumors, in the hope that the market will soon become stable and investors will stop being manipulated by wild rumors.

Most recently, on April 11, the Prime Minister sent Official Letter 311/CD to the relevant ministries and agencies, asking for the strict handling of fake news detrimental to the market and the prompt introduction of measures to stabilize the stock and corporate bond markets, ensure the market’s safe, efficient, healthy and transparent operations and protect the legitimate interests of investors as per law.

Along with that, listed companies, issuers, and members of the market are required to take the initiative to make their information public according to regulations, so there will be no violations of information disclosure that affect the market sentiment.

How do corporate bonds exert their influence?

In addition, it is undeniable that the adverse developments of the corporate bond market, starting with the cancellation of the formerly issued batches of bonds by Tan Hoang Minh and the prosecution and investigation of violations by the group’s chairman, are leaving an adverse impact on the market. Quite a few investors fear that many businesses may end up in the same situation, especially realty firms, as they have issued a massive volume of bonds in recent years.

Therefore, information about the inspection of 12 real estate companies, including many listed ones, was circulated last week, fueled by a certain force to cause confusion. After verification, this turned out to be a regular inspection that has been taking place since 2017, but it had already dealt a fatal blow to real estate stocks.

Obviously, investors have reason to worry once these enterprises are looked into, especially concerning their bond issuance, with the possibility of similar violations getting detected. In that case, general activities will be badly hit, with cash flows likely to get interrupted and stock prices taking a dive.

Even without such a dire situation, the operations of these enterprises will probably run into more challenges in the coming period. Considering the recent negative developments in the corporate bond market, the issuance of new bonds in search of funding or capital to repay previously issued bonds will encounter more hardships. Investors will be pickier, while the consulting, underwriting and issuing partners will practice greater prudence. Then, if they fail to conduct a successful bond issue, enterprises will be under pressure over their financial cash flows.

However, for optimistic investors, the scenario of the corporate bond market receding and no longer being attractive to buyers may open up opportunities to lure money into the stock market, when massive cash flows from bonds are expected to shift into stocks in search of investment opportunities. With trillions of dong poured into the corporate bond channel over the years, plus the sums pending the subsequent offerings, if there is a shift to the stock market, it will be massive support for stock prices.

Besides, after realizing that the real estate market contains more and more risks, with realty firms themselves following the case of Tan Hoang Minh, there is a chance that cash flows from this investment channel will opt for the stock market. In the context that interest rates display signs of going up again, which may affect the liquidity of the real estate market, especially since prices have strayed from real values after the recent fever in this market, investors may look for more flexible investment channels with better liquidity.

That said, there is a source of pressure that the corporate bond market may exert on the stock market, with the volume of shares used as collateral for the corporate bonds issued recently or mortgaged for money to buy low-quality or problematic bonds as recently discovered. Once these stocks are forced to be sold in large quantities for mortgage release, they will inevitably push down stock prices. For this reason, investors need to make their choice wisely, saying no to those stocks which could be in such a situation; otherwise, it will be hard to avoid losses.

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