Derivative securities market operates more stably

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The size of Vietnam Securities market compared to the neighboring markets. Source: Bloomberg, World Bank

Mr. Nguyen Duc Hung Linh, Director of Retail Research and Investment Advisory of Saigon Securities Inc. (SSI) said that after 5 months of implementation, the future contracts had closely grasped basic index, the situation of sharp increase reduced significantly and difference with the basic index was narrowed compared to the same period in 2017 when the difference peaked at 52.8 points which caused risks for investors.

The actual operation has demonstrated the role of the derivative securities market when basic stock market performs badly. The strong fluctuations of the basic stock market in this period caused the price of future contracts to be transacted in large volumes, creating opportunities for investors to seek profit in the session. Therefore, market liquidity highly increased, the average transaction volume reached 23.000 contracts (VND 2,500 billion) compared to 16.000 contracts (VND 1,400 billion) in November and December 2017.

The transaction volume is positive when comparing the basic stock market with the average trading value of VND 8,800 billion in the first quarter of 2018.

The derivative securities has partly attracted cash flow from the stock market, meanwhile the basic stock trading was lower than in January. The opening volume also increased from 6,600 contracts to 9,200 contracts, that shows the investors’ confidence has been significantly improved. This is the positive index that shows the derivative securities market has developed in quantity and quality.

The liquidity of the derivative market increased. Source: HOSE, Bloomberg

However, in Vietnam’s market, the trading in the session still accounted for a large proportion with the trading volume 2-3 times higher than the opening volume at the end of session. The role of derivative securities market tends to invest in price trend than in risk prevention.

Assessing on the development of the derivative securities market in the second quarter of 2018, Mr. Linh said that the development would depend on the basic market. The derivative securities market would bring interest in the increase and decrease trend. The expected return on the derivative investment will increase when the basic stock market's fluctuation is high.

“If the basic market has many fluctuations in the second quarter of 2018, investors will actively participate with derivative securities market, therefore the liquidity will increase. The high liquidity is the first factor to create the attractiveness of the derivative securities market, thus attracting the participation of large investors and foreign investors. The risk prevention function of the derivative securities market will also be expressed more clearly”. Mr. Linh said.

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Also Mr. Linh said that in the near future, the launch of Covered Warrant (CW) products is expected in the market. The expected return is higher than basic securities investment and restrict T+ is the factor to attract investors.

In the future, the future contract will be a channel to attract investors in derivative securities market. Based on the success of the VN30 and future contracts of other indexes and stock can be listed. Thus, the liquidity and diversity of goods will be the two factors to complete the official derivative securities market.