Strengthening investor confidence in the midst of crisis

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Investor confidence strongly influences market movements. Photo: ST.

Strong impact

In general, international organizations assess that the world economy in 2020 will continue on a downward trend, plus the impact from the COVID-19 epidemic will cause it to decline faster if the disease persists. In particular, according to experts, international investment will be strongly affected,combined with geopolitical risks, epidemics will make the global political, economic and social environment even more uncertain, promoting defensive psychology andweakening investment motivation. In particular, in Vietnam, the impact assessment report from the COVID-19 epidemic of the Ministry of Planning and Investment stated that new investors could stop looking for investment opportunities, especially foreign direct investment (FDI), many invested projects are likely to postpone the increase in investment capital.

As evidence for the above judgment, the data has just been announced by the Foreign Investment Agency (Ministry of Planning and Investment), from the beginning of the year to February 20, 2020, the total foreign investment registered in Vietnam reached nearly US$6.47 billion, equaling 76.4percent over the same period in 2019.

Notably, the whole country has 500 new projects granted investment registration certificates, with the total newly registered capital of US$5 billion, more than doubling the same period in 2019. But, according to theForeign Investment Agency, if excluding big projects of more than abillion dollars (like the new investment project of US$4 billion in Bac Lieu in 2020), the total newly registered capital, adjusted and contributed capital to buy shares of foreign investors in the first two months of 2020 was only 53.4 percent compared to the same period in 2019. The number of new registered projects as well as the project expansion both decreased (97.3 percent and 85.8 percent over the same period, respectively).

“In addition to factors affected by the Tet holiday, the COVID-19 acute respiratory infection is complicated and also a factor affecting the travel of investors as well as early decisions,”said the Foreign Investment Agency.

In the domestic financial and monetary market, there have been many developments showing the great influence ofinvestor sentiment. As in the stock market, the VN-Index has now dropped to nearly 900 points. Market sentiment is vulnerable at the moment, so it is understandable that the index will fluctuate in adownward trend. Especially, regarding the money market, in recent days, investor sentiment also directly affects the price of gold and USD. In the first trading day of the week (February 24), SJC gold price was up nearly VND3 million per tael, pushing the selling price at gold brands to nearly VND50 million / tael. But the next day, the previous day's gold buyers lost nearly VND3 million per tael. Experts said that the sharp increase in gold prices was due to speculators pushing the profit wave in the gold market. In particular, at this time the psychology of gold buyers is very confused, forming a "crowd", speculators take advantage of that to push prices up.

Psychological understanding

One of the important recommendations that researchers always propose for macroeconomic stability is to take measures to reassure psychology and strengthen investors' confidence in the business environment. According to experts, investors'psychology always dominates the stability of the market, especially in the financial market, investors' psychology always has a high potential of instability andis the key factor causingmarket crises.

The fact is that Vietnam is still doing a good job of creating confidence for investors. Thanks to drastic measures in managing monetary policy, interest rates have been operated in the direction of decreasing, consistent with macroeconomic developments and inflation fluctuations, contributing to solving difficulties for businesses.In addition, the authorities are constantly improving the business environment, removing business conditions, giving incentives to investors. Therefore, the number of newly established businesses as well as the amount and value of FDI projects have increased steadily over the years, reaching record high figures. Therefore, the impacts from the geopolitical crisis and the aforementioned epidemic are only momentary and long-term. In the long run, the consolidation of investor confidence must continue in many ways.

According to Assoc. Pham Thi Thanh Binh, World Economic and Political Institute, Vietnam has surpassed many competitors to become a destination chosen by FDI investors. However, in order to increase the value of capital flows, Vietnam needs to innovate its capital attraction strategy and promptly resolve investors' requirements on openness, transparency and amendments and supplements to legal policies.In addition, experts also recommend that the Government should establish communication channels to capture investor sentiment, make public and timely disclosure of socio-economic information, especially the information aboutfinancial and monetary news. Regulators must strengthen market monitoring to identify the psychology of the evolutions of the crowd that are likely to cause negative developments in the market.