With the economic support measures after the COVID-19 pandemic, inflation has increased sharply in many parts of the world, prompting many economies to continue tightening monetary policy at a fast and strong pace to control inflation, said the State Securities Commission (SSC) at a meeting held in Ha Noi on Wednesday.
In 2022, the US Federal Reserve (FED) raised the operating interest rate by 3.75 percentage points through six consecutive adjustments; The Bank of England has adjusted interest rates up 7 times in a row since December 2021, to 2.25 per cent. The European Central Bank (ECB) has also adjusted interest rates three times already in 2022 in the context of inflation continuing to increase in this region. The move to tighten monetary policy in the world is raising concerns about the risk of recession and inflation in some countries.
The geopolitical situation will continue to be complicated and unpredictable. The Russia-Ukraine conflict, tensions between major countries and China’s zero COVID strategy continue to aggravate disrupted global supply chains, and rising food and energy prices directly affect the costs of businesses and increase inflationary pressure, said SSC.
Domestically, cash flow on the stock market has been affected by changes in interest rates. After the Fed’s continuous interest rate adjustments, the State Bank of Viet Nam has also increased the operating interest rate twice to cope with inflation and reduce external impacts, it said.
Deposit interest rates at commercial banks have also increased, attracting cash flow back to the banking system and reducing the attractiveness of short-term securities investment channels. In addition, investment capital flows on the stock market have also shifted to production and business activities as the pandemic is under control.
The stock market had grown strongly from 2021 to the first quarter of 2022. Therefore, when there are unfavourable factors, investors will tend to sell to take profits and avoid losses, creating selling pressure in the market. The investigation and prosecution of a number of large real estate enterprises in recent times related to violations in the issuance of corporate bonds have also affected the general sentiment on the stock market, creating cautious psychology, and affecting cash flow in the market.
The SSC said that it will continue to closely monitor developments in the economic-political situation around the world, and assess the impact and influence on Viet Nam’s stock market in order to promptly take appropriate solutions to ensure the stable and transparent development of Viet Nam’s stock market.
Recently on the stock market, there have been businesses increasing bond re-purchases, and individual investors selling bonds early due to concerns that businesses will not be able to repay their debts.
However, according to the Ministry of Finance, international practice and Vietnamese law both stipulate that corporate bonds are issued by enterprises on the principle of self-borrowing, self-paying and self-responsibility.
According to the Ministry of Finance, corporate bonds are not a bank savings deposit product but often have a higher risk when accompanied by high interest rates. With this feature, investors are responsible for self-assessing the level of risks when buying corporate bonds, and are responsible for their own investment decisions.
Therefore, when individual investors are invited to buy corporate bonds, they need to request the distributing organisation to provide complete and accurate information about the issuer and the bonds. Investors need to read carefully and understand provisions in bond documents and corporate information disclosures, said Deputy Minister of Finance Nguyen Duc Chi.
When the issuer has payment difficulties, the investor can actively work with this business and the service provider to agree on a suitable settlement plan, ensuring the interests of both sides.
“Investors also need to pay close attention to the responsibilities and commitments of service providers. Commercial banks and securities companies distribute corporate bonds does not mean that these organisations guarantee the payment of debts. These organisations are only service providers, enjoying service fees from the issuer,” said Chi.
However, the Ministry of Finance said the corporate bond market is still a potential market as enterprises are in need of capital for production and business development. Therefore, the Government’s view is to continue to develop a safe, healthy and transparent bond market, said the Ministry of Finance. — VNS