Leveraging fears talked down

State Bank statistics revealed that around VND14 trillion ($718 million) in outstanding loans had been poured into domestic equities in the year ended May 31, up 13.6 per cent against late 2009.

Brokers of  leading securities firms told VIR that there was around VND10 trillion ($513 million) worth of mortgaged and leveraged stocks, equivalent to 1.4 per cent of the total market capitalisation, under selling pressures as the market fell.

Vietnamese stock markets were in free fall in recent weeks as heavily leveraged equity investors were forced, by themselves or by securities firms, to dump leveraged positions to pay loans or to cash out. The VN-Index closed August at 458.75 points, gaining 9 per cent after the index plunged to a low of 421.30 points on August 25 from around 500 points early this month. 

“If the markets fall again, leveraged investors will be forced to sell off, that could make the market plunge further,” said a market observer.

Le Thanh Tung, analyst with PetroVietnam Securities Incorporated (PSI), said that markets had bounced back sharply in the last four sessions with higher trading volumes, indicating that demand had absorbed all supply on investors’ improved sentiments.

“Given the current market’s development, the supply side from [low priced] leveraged stocks is no longer a risk,” said Tung.

Le Le Hang, a senior director with Saigon Securities Incorporation (SSI) Fund Management Company, added that local investors still used leveraged products, but  many might have sold off stocks before the plunge.

“Therefore, I think that the selling pressures from leveraged stocks are not serious,” said Hang.

Currently, investors can trade stocks with a financial leveraged ratio of one for two or three, meaning that investors can trade two or three times higher if they have one Vietnamese dong.

“Recently, investors became cautious about using leveraging [after a painful lesson in late 2009], so leveraged stocks are not huge,” Nguyen Dinh Phong, a director with Hanoi-based VnDirect Securities said, adding that the leverage level was low compared to the peak in 2009.

In 2009, many securities firms’ over-use of financial leveraging to attract investors contributed to the market’s sharp rally. Consequently the market’s movements depended too much on financial leveraging and hot capital inflows.