Short sellers causing market ripples

Recently, a northern investment institution succeeded in short-selling four million PetroVietnam Construction (PVX) shares. After being sold with large volumes at floor prices, PVX sharply dipped to even below par value within just a short time and being bought back afterwards.

Meanwhile, several real-estate stocks on the Ho Chi Minh Stock Exchange (HoSE) also saw their prices suddenly tumble, only to then suddenly rebound afterwards and fall back once again with shares demands fluctuated dramatically.

Individual investors often  borrow stocks from brokers of some investment institutions to sell in hope that the stocks’ price will decline further. It is often done by private negotiations so regulators do not find out.

Brokerage firms also provide a so-called “short sell – margin” service package to its VIP clients, in which the brokerage lends some special client stocks instead of cash on margin accounts. With such way of doing, brokerages earn lending fees, while suffering smaller risk of losing the loans as local market is in a bearish period.

As a result, there is a trend among major brokerage firms to establish ‘hidden’ funds or securities companies which create share storage areas. With those stores, the brokerages can earn from lending short-selling investors when the market continuously goes down.

“It has become a strategy rather than just artifice of some securities companies,” said a Ho Chi Minh-based senior broker. “That is also the exclusive way those companies allure investors in such difficult situations,” he added.

In Vietnam, short-selling remains a very risky act given poor market liquidity. Theoretically, it will take the sellers at least some sessions to push down the price by 5-7 per cent (price limit in Ho Chi Minh bourse is of +/- 5 per cent) in the local market.

As the market has dropped, some VIP investors and major brokerage firms have benefited from the falls.