Securities overheat and investors need to prepare for gaining knowledge to protect themselves

Phan Dung Khanh, Director of Investment Advisory - Maybank Kim Eng Securities Company

The stock market is growing rapidly. What is making investors pour money into stocks in the context that the economy is still facing many challenges from the pandemic and the uncertainties of the world economic situation?

Looking at the current investment channels, gold has cooled down since the second half of 2020 and is currently in a downward trend, the liquidity of real estate is slow, virtual currency investment is not allowed, while deposit rates plummet. Therefore, some savings have been transferred to the stock channel.

In December 2020, the number of new accounts opened for securities transaction reached a record since the market opened with 63,629 accounts, up 53.3% compared to the previous month. In particular, domestic individual investors opened 63,075 new accounts in the last month of the year, bringing the number of transaction accounts to nearly 2.73 million, equivalent to nearly 3% of the population.

According to the General Statistics Office, the average transaction value on the stock market in 2020 reached VND 7,056 billion per session, an increase of 51.5% compared to the average of 2019. In 2020, domestic investors opened 393,659 new accounts - a record number and up 109% over the previous year. This showed that in 2020, on average, there were nearly 1,100 new securities accounts opened each day. The entry of new investors, or "F0 investors", has made an important contribution to the strong recovery of stock market from 650 points at the end of March to 1,103, 87 points by the end of 2020.

Does the overheated market cause the risk of asset bubbles?

The Vietnamese economy has achieved very good results in 2020 while maintaining a positive growth rate of 2.91%. However, the growth rate of stocks was higher than the growth rate of the economy by many times. Specifically, the VN-Index increased by 70% and the HNX-Index has even increased by 120% (from the bottom in 2020). Many securities on the floor have been priced at very high levels. The current economic context is also potentially difficult as the number of dissolved and shut down enterprises is at the highest level in many years, while the growth of the market is mainly based upon cash flow from individual investors. This showed the risk of an asset bubble is very close.

Will pouring money into stocks in this context lead to risks for investors?

Currently, individual investors in the market are mostly surfing. The number of new investors is too much, so knowledge and experience about investment are limited. Therefore, the risk of "wire swing" and loss is very high. It should also be noted that, in 2020, foreign investors sold the most in decades and have not shown signs of stopping in the early sessions of 2021. Therefore, I think investors need to gain more knowledge as a weapon to protect themselves, as well as having a firm mentality in any market conditions. Specifically, it is necessary to learn about investment analysis and cash flow observation skills to be able to identify which stocks are potentially attracting cash flow and which stocks are being withdrawn.

For management authorities, what recommendations do you have to prevent the risk of the growing bubble?

This belongs to the rules of the market. However, the State needs to give warnings and direct more money flow into the production sector instead of financial assets. When the economy grows faster, the market will automatically be sustainable. Over the past time, the State Bank has lowered the operating rate, causing the deposit rate drop to a low level. However, the interest rates on loans fell more slowly and mainly aimed at priority areas, while procedures to get loans were also more difficult, reducing interest rates on old loans was also very difficult. In the coming time, interest rates may not need to be lowered, but it is necessary to direct capital flow to the right destination for economic recovery. This is a long-term solution that cannot be changed in the short term.