Wider trading bands – securities prices will go up or down?

Investors prove to be happy with the news about the broadening of the daily trading bands to 5% and 7%, believing that the stock market will rise in a sustainable way.

Two important news items came out together yesterday: the petrol price has decreased by VND1,000/litre, and the stock daily trading band has been raised from +/- 3% and +/- 4% to +/- 5% and +/- 7% for transactions at the HCM City Stock Exchange (HOSE) and Hanoi Securities Trading Centre (HASTC), respectively.

News makes investors happy

Impacts of the news were the main topics of discussion of members of online securities forums.

Nickname HongNhung463 on Vietstock forum wrote: “With the previous petrol price increase, the stock market fell down for one week, and it is likely that the market will increase for one or two trading sessions with this petrol price decrease.”

Nickname BillGate believes that the petrol price decrease and broadened daily trading band will make the market more bustling, heralding the market’s return in the long term.

It seemed that the petrol price decrease of VND1,000/litre did not satisfy investors, who thought that the decrease was not big enough to push the VN Index up. However, other investors said that in the current conditions, “half a loaf is better than no bread”.

Nguyen Son, Head of the Market Development Division under the State Securities Commission (SSC), said that SSC raised the daily trading band after considering the improved macroeconomic indices, the decreasing oil and gold prices (oil has fallen to $110/barrel, while gold $800/oz), the improved monetary market, and the improved liquidity of the stock market.

When asked why SSC decided to resume the initial daily trading band of +/- 5% for HOSE, while only raising the daily trading band to +/- 7% for HASTC (the initial daily trading band for HASTC was +/- 10%), Son said that SSC is going to put the OTC market under control, and it will have the daily trading band of +/- 10%. Therefore, the +/- 7% trading band has been set for HASTC.

The possible impacts

A broader daily trading band will create different price levels for different investors to choose from. However, Son said that if the daily trading band is overly broad in an uncertain market share prices decrease more quickly and have bad impacts on the market.

Son added that though the macroeconomy has improved, there are still big difficulties for enterprises, especially in the last months of the year.

How will securities prices perform after the daily trading band is broadened? Answering the question, Nguyen Tri Dung, Deputy Brokerage Director under Trang An Securities Company, believes that the stock market will rise in the short term.

Though the petrol price decrease was lower than the expected level, the new will still have positive impacts on the psychology of investors. “The market is improving with the two important pieces of news, and only very bad news could upset the market now,” Dung said, adding that the VN Index may soar to the 500-point threshold in some more trading sessions.

Chairman of the Saigon Securities Incorporated (SSI) Nguyen Duy Hung also said that the broader daily trading band will help improve the market’s liquidity. However, Hung personally thinks that it is not necessary to broaden the daily trading band right now, when the market is operating normally.

Nguyen Thanh Hung, Director of Saigon branch of Sacombank Securities Company

Transactions have been going well, and it is important to resume the initially-applied daily trading bands. I think that the VN Index will increase several days after the decision on the new trading bands comes into effect.

I think that the supply of securities will be profuse early next week as a lot of investors will sell stakes to stop losses or preserve profit when the daily trading bands broaden. However, this will happen in the short term only. In the long term, the demand will be very big and stable, and this is a good thing for the stock market. If the VN Index surpasses the 480-point threshold early next year, I think that the VN index will increase to 500 points later.

Stock analyst Bui Ngoc Tuoc

A wider daily trading band will help quickly improve the liquidity of the market and stimulate transactions. The total trading volume of 20mil units on HCM City’s bourse on August 14 partially reflects the expectations of investors. However, investors should be cautious with their transactions, as wider trading bands means more profit and bigger losses as well.

Pham Linh, Deputy General Director of VIS

I think that the broadened daily trading bands are suitable. If the trading bands are overly wide, the stock market will see sharp fluctuations, which will shock investors. The said trading bands will ensure safety for investors in the context of the fluctuating world and domestic markets.

I think that the VN Index still cannot increase sharply as the money inflow into the stock market remains limited, and it is highly possible that the VN Index will hover around the 500 point threshold. (Tien phong)