New generation of investors
The stock market has grown phenomenally since it was founded twenty years ago. One can evaluate many development achievements in this time period but the most successful is the emergence of a new generation of professional financial investors. This vibrantly growing community is fueling the market and making investing in stocks a popular pastime.
It is rare for a stock market that is only twenty years old to go through three bull-bear market cycles. The ups and downs of the market are the biggest training grounds for any investor. The first investors were very few in number, and only knew about the stock market through books, but now the number of securities accounts that have opened have reached around 2.54 million, with most accounts being that of individual domestic investors.
What is more important is the increase in the volume of investors, and looking back to 2007, there is a big difference now. During that period, the basic financial analysis easily accepted an inflation rate of 28%, though optimism remained. Now, during the Covid-19 pandemic phase, a completely different psychology prevails. Investors see fluctuations in stocks, but exploit on cheap opportunities. If a stock market wants to develop, the quality of an investor is the most decisive factor.
This quality of investors has risen in numbers and the high level of professionalism has created conditions for the market to appear as a developed market. The standards to upgrade from a marginal market to an emerging market and attract larger capital flow from professional financial institutions are met by having a full range of products.
Profit and pitfalls
If in 2006 the stock market had only around 200 listed companies with a market capitalization of about VND 221,000 bn, equivalent to 22.7% of GDP, by the end of 2019, there were 1,662 listed and registered companies for trading with a market capitalization of VND 4,384,000 bn, equivalent to 72.6% of GDP. The value of capital mobilization of businesses through the issuance of shares and corporate bonds in 2019 reached VND 102,800 bn, an increase by two times compared to the whole of 2018. This shows evidence of excess growth in a very short time. Not only that, the market liquidity from a few hundred billion dong in 2006 has now reached tens of thousands of billion dong as seen in June 2020.
The stock market has done exactly the same role as the capital channel, but in the eyes of investors, there are still many risks and even pitfalls. These factors also change over time and become more and more sophisticated. Goods on the stock market were initially just a group of equitized state enterprises but the quality of enterprises had to go through a careful valuation process. As the market grew, capital flow in the market became bigger, and the phenomenon of private equity enterprises appeared on the Stock Exchange.
Investors have never easily agreed with exchanging paper for money on the stock market. The case of Central Mining and Mineral Import-Export JSC (MTM) for the first time made investors aware that a virtual business with absolutely no assets or no business activities still forged full records to list shares on stock exchange and sell to investors.
When exchanging paper for money, there will always be companies that increase their capital before listing by use of various loopholes, such as buying ghost companies at a sky-high price. A company with a capital of VND 100 bn just needs to buy back a few listed companies to double the capital on the books. This may happen by using hot loans to raise capital that is actually virtual capital, because the loan is then repaid and the virtual capital is raised at the same time with outside investment cooperation with companies and individuals that cannot be verified. It took a very long time for the market to realise this, but by then the implications were far too great.
