Reduce the number of individual investors to avoid negative consequences.

Private corporate bond market: Reduce the number of individual investors to avoid negative consequences.

Economists warn that the proportion of individual investors participating in private corporate bond issuance should be gradually reduced, otherwise it will have significant consequences.

When individual investors lose money, who can they turn to for help?

While the story of tens of thousands of bondholders from Tan Hoang Minh and Van Thinh Phat is still fresh in people's minds, thousands of other bondholders are also facing the prospect of having to accept extensions and deferrals of bond payments, anxiously awaiting their maturity dates. Individual losses from bond investments are not unique to Vietnam.

According to Mr. Do Ngoc Quynh, Secretary General of the Vietnam Bond Market Association, during the 2008-2011 crisis, when Lehman Brothers went bankrupt, many small bond investors lost money, including individual investors in Hong Kong. At that time, individual investors blamed the government for its irresponsibility in allowing the company to issue bonds, and credit rating agencies for misrating the company's rating.

Following this scandal, Hong Kong introduced a mandatory tool in the offering process: a comprehensive risk checklist for financial products, requiring investors to read and sign it, fully accepting the associated risks.

Although the Securities Law of 2019 and Decree 65/2022/ND-CP have raised the standards to include professional investors, even meeting the standards does not mean that professional individual investors are capable of fully assessing the risks of bonds.

Mr. Nguyen Anh Minh, Deputy Head of the Bond Registration Management Board, Vietnam Securities Depository and Clearing Corporation (VSD), believes that the role of professional individual investors is very important in the bond market. However, in reality, investors who are considered professional are not strictly defined; a confirmation from a securities company is often sufficient to qualify them as professional investors.

On the other hand, when a company issues shares privately to individuals, the majority are only concerned with selling as many shares as possible, without considering whether the investors have sufficient knowledge or understanding of the company.

Investors often buy these bonds based on advice from brokers or relatives. This leads to many negative consequences when the issuing entity fails to guarantee repayment, resulting in losses for individual investors.

"In my opinion, for the corporate bond market to develop sustainably, it is necessary to improve the knowledge of individual investors. Individual investors should be encouraged to authorize their agents to thoroughly research bonds and take responsibility for the products they offer to investors," Mr. Minh suggested.

Encouraging individuals to invest through funds.

According to Mr. Hoang Van Thu, Vice Chairman of the State Securities Commission, the Commission will soon issue regulations to guide small-scale investors in investing in stocks and corporate bonds through funds.

“The irregularities occurring in the market all involve investors with limited risk assessment capabilities. Therefore, the State Securities Commission is studying the target group for private bond issuance, aiming for professional institutional investors to enhance professionalism and risk assessment. The Commission will also strengthen fund operations and encourage the opening of more funds. We expect the revised regulations to be approved by the National Assembly in October 2025 and take effect from January 1, 2025,” Mr. Thu said.

In reality, no financial product is completely risk-free, it's just a matter of degree. Each investor, based on their knowledge, needs to establish their own risk tolerance. Building a mechanism to ensure all investors have professional knowledge is very difficult.

In the current context, regulatory bodies must develop targeted policies that are appropriate to the situation and provide a framework to reasonably protect the interests of individual investors, rather than offering complete protection.

Mr. Do Ngoc Quynh, General Secretary of the Vietnam Bond Market Association

In reality, the risks associated with corporate bonds are not necessarily due to investors' poor assessment and evaluation of the project or the issuing company, but often due to objective factors. Sometimes, a bond issuer may have a sound business plan, but if market risks arise, the issuer may not be able to make timely payments.

It's important to understand that not only corporate bonds, but no investment channel is absolutely safe. However, gradually reducing the proportion of individual investors participating in private corporate bond investments is a correct approach.

“Experience from countries around the world and the reality in Vietnam shows that individual investors should not be encouraged to buy private bonds. This is a channel that the Government must regulate, otherwise it will have serious consequences. Instead, there needs to be a mechanism to attract institutional investors,” suggested Mr. Nguyen Quang Thuan, General Director of FiinRatings.

Regarding the issue of financial literacy education for individual investors, Dr. Can Van Luc, an economic expert, believes that the awareness and understanding of stock market investors in general, and corporate bond investors in particular, are still limited, leading to a tendency towards herd mentality and investing only in interest rates, regardless of risks.

"Individual investors need to improve their knowledge and skills in personal financial management, especially regarding investment products, legal regulations on the securities market and corporate bond market, and thoroughly understand the issuing organization; they can also consult with institutional investors to make sound investment decisions," Mr. Luc advised.

Source: https://baodautu.vn/cho-trai-phieu-doanh-nghiep-rieng-le-giam-nha-dau-tu-ca-nhan-de-tranh-hau-hoa-d222672.html