Taking stock

Vietnam Investment Review; June 18, 2001 -- Article Excerpt. The past 11 months have been more a roller coaster ride than gentle learning curve for the nation's stock market pioneers. Vuong Quan Hoang analyses the quirks and deviations of the nascent bourse

FOUNDED on July 20, 2000, the Ho Chi Minh City Securities Trading Centre (HSTC) has not been in existence long enough to allow scientific models to function, either empirically or theoretically.

However, 11 months has been sufficient time for thousands of people to invest their money.

The establishment of the HSTC itself was considered the first success and the beginning of operations with two firms listed on the bourse's boards the second. Although there are currently only five listed companies, trading does happen.

The HSTC is governed by a set of regulations designed to avoid collapse and to ensure the smooth functioning of the market. Generally, these regulations work, with occasional exceptions.

One example is the temporary trading interruption of Transimex (TMS). Trading only resumed following re-assessment of the reference price. Also, some manipulation was believed to have taken place, with orders having been written then cancelled deliberately.

Following that incident, the State Securities Commission (SSC) decided to ban the discarding of orders written by market participants, a move that still makes investors uncomfortable. Another problem is the lack, or misrepresentation, of information.

Most recently, a "warning" message issued by the SSC in an attempt to ease the `irrational exuberance' that had built towards Hapaco's shares failed to produce the desired effect.

The qualitative statement is that the fledgling market is worth exploring, not because it has produced returns for some investors, but because it contains some interesting properties.

Based on observations of the HSTC over its first 113 trading session, the main trend has been for stock price to move by the maximum allowed fluctuation of 2 per cent.

In most trading sessions, share prices have hit the ceiling, but they have also sometimes dropped to the floor.

Graphical analysis of these movements shows that the market is caught in a "liquidity trap".

When traders expect the price to go up, they tend to place orders at the upper limit. But of course, knowing that the value of the shares they are holding are set to rise, shareholders are unlikely to want to sell them, leading to very low transaction volume, both in terms of the number of shares traded and their monetary value. In a non-parametric manner, the stock runs in this case are positive for many consecutive sessions.

When the direction turns, the "trap" again springs, only this time in reverse, with shareholders finding it extremely difficult to sell.

Again, few shares are traded. The only exception to this situation is right at the point where the direction starts to turn, and when this happens, large transaction volumes are recorded for the session.

The graphs below show a remarkable similarity between the five listed companies' share price movements. But this close correlation should not be so. For the time being, there is nothing normal in the distribution of stock returns on the HSTC.

When assuming normality,...

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