VIETNAM Lower margin costs fail to attract stock investors

Lower margin costs fail to attract stock investors

A number of stock brokerages are attempting to attract capital back to the stock market by reducing the interest rates they charge on loans to finance clients' margin trading or by offering advance trading settlement payments to investors.

Interest rates on margin trading at some brokerages have fallen to around 18-20 per cent per year compared to levels of up to 22 per cent earlier this year.

BIDV Securities Co has announced a lending rate of 19 per cent, effective this month, while Military Bank Securities Co has cut interest rates on margin services to the market's lowest level, only 0.05 per cent per day – or approximately 18 per cent per year, effective last Friday.

Besides helping brokerages increase their competitiveness, lower interest rates were expected to enhance market liquidity. But trading has continued sluggish during recent sessions, with trading value reaching less than VND1 trillion (US$47.5 million) per day on both of the nation's stock exchanges. Previously, trading often hit VND2 trillion ($84.2 million) per session.

As deposit rates at commercial banks are as low as 9 per cent, bank deposits are becoming a less attractive place to stash cash, while gold, foreign currency and real estate markets remain risky. Therefore, brokerages are optimistic that securities can attract more idle money.

However, investor Nguyen Tuan said he still limited his investments in stocks due to bleak trading volumes and high levels of investor profit-taking.

A brokerage official who asked to remain unnamed revealed that, although his company had relatively large cash reserves on deposit in banks, both the firm and its investors were cautious towards margin trading.

"We cannot know what kind of risks margin trading will bring when enterprises are still facing difficulties," he said.

Nguyen Tien Hoang, head of IRS Securities Co's marketing department, said investors were disappointed after waiting so long for the stock and real estate markets to return to their heydays.

Some investors, Hoang said, had adjusted their portfolios to make a reasonable return. "But they are the few and far between," he said. "The rest of the investment community has lost interest. It's not the time to dream about another market bubble in which you could triple your profits."

Although the stock market had been declining again lately, share prices remained higher than at the end of last year, noted Military Bank Securities Co analyst Hoang Cong Tuan. But there needed to be significant changes in the economy and business operations to stir up new interest in the market, he said.

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