Focusing on solutions to stabilize the stock market

A wide range of solutions

From the beginning of April, the stock market has experienced a very strong downward correction. As of May 13, the VN-Index closed at 1,182 points, losing 342 points from the peak set on April 4, 2022. Especially, from May 9 to 13, Vietnam’s stock market ended a haunting trading week when the VN-Index lost 146.49 points, the strongest drop in history. This is also the first time VN-Index has dropped below 1,200 points after more than 13 months since March 31, 2021.

In addition to some impacts from domestic information, Vietnam's stock market decline in recent years has mainly stemmed from investors' cautious sentiment before the political and economic instability in the world.

At the same time, the decline also stemmed from the strong increase of the domestic market in the past two years, which also needs adjustment periods to accumulate and consolidate for a new upward cycle.

According to the leader of the State Securities Commission (SSC), facing strong fluctuations, the management agencies are giving special priority to short-term solutions to stabilize the market and reassure investors. In the immediate future, the SSC has requested the Vietnam Stock Exchange (VNX) guide the Ho Chi Minh Stock Exchange (HoSE) and the Hanoi Stock Exchange (HNX) to disclose information on proprietary trading transactions of securities companies.

In the near future, the SSC will submit to the Ministry for amendments and supplements to Circular 96/2020 dated November 16, 2020 of the Ministry of Finance guiding information disclosure on the stock market. Along with that, in order to limit  the price impact of the derivatives stock market on the underlying stock market, the SSC has approved to apply the adjustment of the final settlement price of the VN30 index futures contract.

Accordingly, the final settlement price will be the simple arithmetic average of the VN30 index in the last 30 minutes of the maturity date after subtracting the three highest index values ​​and the three lowest index values of the continuous order matching session instead of only taking the VN30 index value of the closing periodic order matching session as previous.

At the same time, medium and long-term solutions have also been offered. SSC’s leaders said the management agency is actively improving the legal framework for the stock market, developing the stock market development strategy to 2030 to clearly define the goals, solutions and development roadmap of the stock market for the long-term. Regulations on transparency of enterprise information, rights and responsibilities of participants, and sanctions for law violations on the stock market to protect investors have been reviewed and revised to restore trust and ensure healthy development, transparency and sustainability of the stock market.

Purge short-term investors

Previously, the Ministry of Finance and the SCC also paid attention and gave drastic directions in enhancing the stable and healthy development of the stock market. A series of violations have also been strictly handled by the management agencies. Typically, the competent authorities have prosecuted, arrested and detained many suspects for their acts of manipulating the stock market, or making mistakes in the issuance of private corporate bonds.

According to Finance Minister Ho Duc Phoc, the management agency's goal is to build and develop a stable, safe, transparent and sustainable stock market, so the market purification will contribute to ensuring the interests of legitimate investors and enterprises, increase the attractiveness of the stock market in attracting more investment capital flows in and out of the country, helping upgrade from marginal to emerging.

The resolute handling of violations may affect investors’ sentiment in the short term, causing the market to slow down, but it is an effort to help the market have more transparent and sustainable growth.

Mr. Hoang Cong Tuan, Chief Economist of MB Securities Company (MBS), said: “In terms of an investor and a consultant for foreign investment funds, we find that they take market transparency into special account. Therefore, the recent moves of the regulator to purify the market are very serious and necessary. In the future, more institutional investors, funds and foreign investors will join the Vietnamese market.”

According to Mr. Tran Thang Long, Analysis Director of BIDV Securities Company (BSC), 2022 will be a really challenging year for investors, especially new ones who have not experienced strong fluctuations, thereby purging short-term investors.

“This is the year that investors will have to spend more effort to select businesses with outstanding business performance in the industry and the general market. As for the longer-term perspective, Vietnam's stock market is still an extremely potential market, investors instead of just thinking about short-term investments for this week or this month, think about 2023 or 2024 when Vietnam has the opportunity to become an emerging market,” said Mr. Tran Thang Long.