Investors face high risk in real estate stocks

(SGI) - Real estate stocks are suddenly facing strong pressure on the stock market after their recent spectacular increase. This is also an extremely risky time for investors who intend to deal in real estate stocks with the expectation that the stock price will increase many times over.
Illustrative photo.
Illustrative photo.

Stocks push ceiling

After the unexpected yet successful auction of four public land plots in Thu Thiem New Urban Area of Thu Duc City, real estate stocks pushed to the ceiling in the session on 13 December. Even businesses that do not have a land fund in this area rushed to increase their price following the excitement of investors on the stock market. The heat from the group of real estate stocks spread to related industries as well such as construction, steel, and building material. According to statistics, in the trading session on 13 December, there were hundreds of stocks that hit the ceiling price, mainly stocks belonging to the above sectors such as NLG, NTL, DIG, HBC, HTN, HAR, CII, SCR, NKG, HSG, SMC, and TLH.

In fact, for real estate stocks, this is just an extension of the dizzy price increase reaction, ever since the Southern provinces and cities eased social distancing to prevent the Covid-19 pandemic. According to statistics, in the last one month, the group of real estate stocks recorded an average increase of 50% to 200%. Compared to the beginning of the year, many stocks also recorded an increase which was dozens of times over. Even on the stock market today, any securities related to real estate, even if it is a business going at a loss, or becomes a hot stock that is bought by investors at all costs, many real estate codes are trading at towering prices, from VND 100,000 to VND 200,000 per share. It is because of this attraction that up until now, only a few real estate stocks are trading below par value of VND 10,000 per share.

At the session on 13 December, many real estate stocks suddenly dropped sharply in the following sessions. The sudden correction of real estate stocks caused many investors to race orders in the morning and suffer heavy losses in the other trading sessions. Mr. Hau from Ho Chi Minh City, collapsed in the afternoon when the stock suddenly dropped to the floor. In just one transaction, Mr. Hau's account lost by nearly 20%. The reason why Mr. Hau was worried after this reversal was because many stocks had gone downhill after a series of strong price increases before, but they couldn't cut their losses. For example, in the LIC, SDA, SJF, TNI, or SDA codes.

Rush for hot money

Mr. Hau's sadness did not last long when the stocks swung to the top suddenly and recovered after two correction sessions. In the trading session on 16 December, the group of real estate stocks simultaneously increased to the limit when the cash flow continued to pour into this industry group. This unexpected development created more motivation for investors to pour more money into real estate stocks, especially businesses that are still facing many difficulties, from profit to business cash flow, such as HQC, DLG, QCG, ITA, ROS, and PTL.

By observing market movement, it is easy to see that the cash flow into weak businesses is actually speculative cash flow of individual investors. The need to seek profit will direct investors to small and medium sized stocks such as real estate or construction. Individual investors, especially F0 investors, often have a psychological expectation of achieving high profit in the short term, attracted by the large profits from previous participants in the stock market. Small initial capital plus the appetite to accept risk is the reason why speculative capital flow tends to look for stocks with quick profitability like real estate.

Return to true value

Even if businesses do not do well, their stock price increases many times, causing an imbalance for the stock market. Investors themselves are also at risk, once the market may have a strong correction to restructure cash flow. At this time, speculative stocks, which are only attractive because of their high profitability, will be the first to be sold off. Then the cash flow can return to good stocks to find the balance.

A securities expert with the same opinion said that the risk here is that many stocks are unbelievably high compared to the internal situation of enterprises. The development of the market is currently dependent on cash flow. Once the money is still strong, investors will sell stock to buy another or rotate it from one group to another. Therefore, the story of a market crash will never happen when the cash flow, although declining, still stands at a high level compared to before. Even, if viewed from a positive perspective, the cash flow often tends to seize the opportunity. After withdrawing from the group of real estate stocks, they will switch to another industry group with better fundamentals. Then the risk of the market will decrease gradually.

The issue that many people are most concerned about right now is when will cash flow out of weak real estate businesses and switch to a group of stocks with basic foundation. According to experienced investors, the corrections in the past week are a sign that the cash flow is gradually withdrawing from hot real estate stocks but is not based on the internal situation. Subsequent recovery sessions are likely to be the cash flow of the stock driving teams. They manually switch stocks at high prices to create liquidity and stimulate the greed of individual investors. Once the stock price reaches the target, they will sell out and then the last buyers will be the losers. In other words, the market is ultimately at a standstill.

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