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Fairy tale ends for businesses investing in securities market

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HANOI: Analysts say the returns on investments businesses made by diverting their funds into the stock market are drying up.

In the second quarter, those with large investments in certain stocks could not sell out in time and suffered heavy losses as they needed money to reinvest into their core business.

Things had been much better in the first quarter.

In the first three months the Tasco Joint Stock Co earned 126 billion dong (RM23.84mil) from its stock investments.

The Joint Stock Sam Holdings Co reported earnings of 47.7 billion dong (RM9.09mil) from the securities market, a 139% increase from the same period last year.

However, their core businesses remained mired in difficulties, and their profits mainly came from financial investment.

Tasco is in construction and engineering, and specialises in building infrastructure, residential and commercial buildings for lease and sale and new urban areas.

It provides engineering, testing and supervision services for construction projects. It also manufactures concrete products and trades construction materials and vehicles.

Sam Holdings is in the telecommunications sector with its main products including fibre-optic and copper cables.

In the last two years, when the country was severely affected by the Covid-19 pandemic, the production and business activities of most enterprises ground to a halt, and many of them had idle money while the market boomed.

Many turned to speculating in the stock market, and, as happens during a bull run, made great profits until the end of the first quarter.

But since the beginning of April the market has been experiencing a major correction, the strongest in the last two years.

In a recent interview with Vietnam News Agency, a State Securities Commission (SSC) official said the stock market was going through a strong adjustment period due to the combined impacts of local psychological factors and risks from the international market such as the United States raising interest rates sharply, geopolitical tensions, inflationary pressures, and sharp increases in commodity prices, including of oil.

He said though the stock market was expected to recover and grow again in 2022 and in the coming years, but in view of the recent volatility, the regulator was focusing on short-term solutions to stabilise it and reassure investors.

One of the solutions would be to make changes to improve transparency and drive liquidity.

As for medium and long-term solutions, he said the SSC was completing a legal framework for the stock market and a development strategy with clearly defined long-term goals, solutions and roadmaps.

It was reviewing the Law on Securities and guiding documents, especially with respect to transparency of corporate disclosures, the rights and responsibilities of participants and sanctions for violating regulations, thereby restoring investors’ trust and confidence, he said.

Soon it plans to roll out more solutions to improve operational efficiency, service quality, financial capacity, and the professional ethics of service providers in the market like securities brokerages, audit companies, fund management companies, asset valuation companies, and credit rating agencies.

To attract foreign portfolio investment, the SSC is speeding up efforts to get Vietnam upgraded from frontier to emerging market status.

Large-scale corrections to the stock market have significantly affected the profits of many investors whose margin accounts had to face margin calls, according to analysts.

This is because those corrections made the value of many securities in brokerage accounts fall below a certain level, known as maintenance margin.

A margin call occurs when a margin account runs low on funds, usually because of a losing trade.

Another important reason that has made businesses turn their back on the stock market is that the economy is recovering strongly and so businesses need money to resume their core business, meaning they have to reduce investments in financial assets like stocks. — Viet Nam News/ANN