Lop-sided
trading bands have been suggested as a measure to rescue the falling stock
market.







If the
stock market keeps falling for a long time, investors’ confidence in the market
will be lost and the stock market will collapse. Therefore, experts have urged
the Ministry of Finance and State Securities Commission (SSC) to take actions
urgently to rescue the market.







No
transactions for many share items







The stock
market witnessed another lackluster day on May 13, when the trading volume
under the mode of matching orders in HCM
City was VND39bil only,
just equal to 5% of normal days. The trading volume was VND17bil in Hanoi.







A lot of share
items like BTC, HAX, HDC, and ST8 did not see any transaction.







Investors,
letting things run their course, tried to sell stocks. The share prices are now
just equal to 15-20% of the highest peak price levels.







SSC’s Head
of the Market Development Division Nguyen Son once stated that the commission
will ‘apply strong measures’ when necessary if the market falls into
uncertainty. And now is when investors are expecting the promised ‘strong
measures’.







Which
strong measures?







Hoang Xuan
Quyen, Investment Analysis Director of Tan Viet Securities Company, wrote on
Thoi bao Kinh te Vietnam
that there are six possible strong measures:







1.
Temporarily halting transactions for a certain time



2. Closing
the market when the VN Index and HASTC Index fall into the ‘dangerous areas’



3.
Narrowing the trading bands



4.
Providing more room for foreign investors



5. Limiting
the sales of mortgaged stocks by commercial banks



6. SCIC
(State Capital Investment Corporation) to join the market







According
to Quyen, No 1 would not be easy to implement as it requires the agreement of
all market members. Moreover, SSC thinks that drastic measures are not
necessary at this moment.







No 2 proves
to be unfeasible, as there is no concept of ‘dangerous areas’.







The two
last measures, No 5 and 6, were applied in the past, but did not bring desired
effects.







No 4,
raising the allowed foreign ownership ratio in local companies, has been a hot
topic in the discussion of investors and securities experts, who consider this
an effective way to stimulate demand. However, state management agencies are
still hesitating to raise the foreign ownership ratio, as this is considered a
risky solution. The agencies are still worried about a massive capital
withdrawal of foreign investors which could lead to the collapse of the stock
market.







Regarding
the application of trading bands, Quyen thinks that SSC will not use the tool
once again (In March, the trading bands were lowered to 1% and 2% for HCM City
and Hanoi trading floors, respectively, and then have been raised to 2% and
3%).







Quyen said
that many developed market are still applying the trading band scheme in order
to avoid market ‘hyperactivity’. Austria
and Turkey, for example, are
applying the trading band of +/- 5%, Taiwan
+/- 7%, India +/- 8%, Argentina, Mexico,
Spain and China +/- 10%, while Malaysia
and Thailand
+/- 30%. Some countries are applying lop-sided trading bands like Belgium (-5%; +10%), France and Italia (-10%;
+20%), Philippines (-30%; +
40%), and Japan
(-10%; + 60%).







However,
many others think that the application of the lop-sided trading bands will help
rescue the market.







Nguyen
Chinh Nghia, General Director of Hoang Gia International Joint Stock Company,
said that previously, when Taiwan’s
market was gloomy, Taiwanese authorities applied the lop-sided trading band
scheme (the allowed maximum price increase is higher than the maximum price
decrease. The “-10%; +20%” trading band means the share prices of the next
trading session must not be 20% higher and 10% lower than the prices of the
previous session).







If the
lop-sided trading band scheme is applied, investors will regain their
confidence in the market if they feel that the stock market has fewer risks.
This will encourage them to make transactions, which can help stimulate demand.








Nghia said
that in Vietnam,
the price decrease should be limited at -0.5% or -1%, while the price increase
should not be limited.







Analysts
say that the solution may cause side effects, but most importantly, it will
help restore investors’ confidence. Meanwhile, if the market falls into decay,
it will be impossible to restore investors’ confidence.