Expanding trading lot will discriminate against new small investors: experts
Increasing the minimum trading lot on the main bourse to reduce system overload would make the stock market an exclusive playground for the rich, experts warn.
A new investor (L) speaks to staff at a brokerage in District 1, Ho Chi Minh City on January 13, 2021. Photo by VnExpress/Quynh Tran.
Thao in Thu Duc City recently transferred VND20 million ($869 million) into her trading account, seeking to make profits on the stock market for the first time, only to realize that the Ho Chi Minh Stock Exchange (HoSE) is considering raising the minimum trading lot amount from 100 to 1,000 shares.
The proposed increase, a measure being considered to reduce overload on the bourse's system due to a surge in the number of transactions in recent months, could rob Thao of opportunities to invest in blue chips like dairy giant Vinamilk and electronics retail chain Mobile World and force her to trade stocks priced under VND20,000 ($0.87).
"I will have to invest at least VND78 million to own blue chip stocks like NVL of Novaland Group. This is too much for a new investor," said Thao, who runs her own eatery.
She is considering whether to go ahead and purchase stocks or withdraw her money and give up on trading.
Thousands of new investors like Thao are facing a similar dilemma as the main bourse HoSE struggles to resolve its overload issues that have plagued the market for months amid a surging interest in the stock market from individual investors.
The exchange's CEO, Le Hai Tra, told reporters recently that increasing the minimum trading lot will serve to protect small investors as they can invest in exchange traded funds which are operated by professionals.
This will, in turn, increase the number of professional traders on the market, which is what the government wants, he said.
The move could reduce the number of transactions on the bourse by 40-50 percent and could ease pressure on HoSE’s 20-year-old system.
Vietnam has seen the number of new stock trading accounts surge since the third quarter last year as the market recovered from slumps caused by the Covid-19 pandemic.
There were 2.86 million stock trading accounts at the end of January, 20 percent up from a year earlier and equivalent to 2.94 percent of the country’s population.
Experts say that the increasing the minimum trading lot might be a roadblock in making the stock market a viable channel for raising capital in the mid and long term, which is important for the economy.
Tran Xuan Nam, chairman of financial consultancy Saonam in Ho Chi Minh City, said that the booming stock market has attracted a large number of new investors and this pumps up capital for listed companies.
Stock authorities want to have 5 percent of the population trading by 2025, but an increase in minimum trading lot will chase away newcomers and even make existing investors leave, he said.
This is even worse than letting the overloads continue, he added.
Echoing him, Le Vu Kim Tinh, a branch manager of brokerage Phu Hung Securities Corporation in HCMC, said the market could be turned into a dedicated playground for the rich and small investors will pull out and divert their attention to other asset class like real estate.
"The market is currently attractive, but an increase in the minimum trading lot will stop the cash flow. It will be very difficult to attract investors again once they have withdrawn their cash and begun focusing on real estate and gold," he said.
Tinh proposed that some stocks on HoSE be temporarily moved to the Hanoi Stock Exchange to ease burden on the system.
If HoSE persists with the idea of increasing the trading lot, it should be done in terms of the price range, he said. Stocks priced over VND100,000 could still be traded with 100 minimum shares, while those in the VND50,000-100,000 range be traded in lots of 200, while those under VND50,000 be traded in lots of 500.
This means a transaction will be priced at around VND10 million, which is reasonable for the majority of investors, Tinh said.