Why did stocks fall so much? What should investors do?

(NLDO) - Is the sharp decline in stock prices on July 29 a necessary break before the market enters a new growth cycle?

The trading session on July 29 left a big shock to the Vietnamese stock market when the VN-Index fell 64 points, equivalent to more than 4.1% - the sharpest drop in Asia during the day.

In just one session, nearly 280,000 billion VND in capitalization on the HoSE floor "evaporated", along with a record-breaking transaction value, reaching nearly 76,000 billion VND, equivalent to 2 billion USD.

This development not only shook the market but also created a wave of panic among investors, especially after a large securities company suddenly announced a cut in margin lending rates for a series of stocks. This move further raised investors' concerns that the market was entering a period of short-term instability.

The sharp drop in stocks on July 29 made many investors worried. Photo: V. Vinh

Why did the stock market fall so much?

However, a professional perspective shows a less pessimistic picture. Dr. Nguyen Anh Vu, Head of the Finance Department, Banking University of Ho Chi Minh City, said that the fact that securities companies tightened margins actually reflects a necessary warning about the speculative situation during the recent hot period.

He also emphasized that if we look further, markets waiting to be upgraded to emerging markets often record strong growth waves before and during the upgrade period. Vietnam is no exception to this rule. The market's ability to receive new foreign capital flows is a long-term factor, not affected by short-term fluctuations such as margin adjustments.

Therefore, according to Dr. Vu, knowledgeable investors will not rush to panic, especially when recent growth has mainly come from large-cap stocks (bluechips), causing the P/E ratio to remain within a reasonable valuation range.

Sharing a positive view, Mr. Huynh Anh Tuan, General Director of Vikki Securities Company, said that although the amount of money pouring into the market recently is a record, it is not unusual. In fact, it is a capital flow that was predicted in advance, including money withdrawn from savings accounts, temporary cash flow from investors who had taken profits, and especially the return of old investors with market experience, not a wave of F0s lacking foundation like in the 2020-2021 period.

Mr. Tuan also shared the observation that many businesses are currently taking advantage of low interest rates and idle money to invest in the stock market, showing a long-term belief in growth potential, not unlike the market boom period during the COVID-19 pandemic.

With a 200-300 point increase in just a few weeks, it is completely reasonable for some investors – especially private corporations owning large-cap stocks – to take profits, not reflecting a complete withdrawal from the market.

There is nothing wrong with taking profit.

Meanwhile, Mr. Phuong (an investor living in An Lac ward, Ho Chi Minh City) said he did not expect the market to increase so strongly in such a short time, helping him achieve a profit of 30% in just 2 months. He took profit in the last session of last week to "keep the results", especially when the profit level exceeded initial expectations. "If it goes up, I will not regret it, because I set an expectation limit from the beginning. When it goes down, I will buy back. I do not think the stock market can increase forever" - Mr. Phuong shared frankly.

A brokerage director at VPS Securities JSC assessed that the sharp decline on July 29 was largely due to panic among individual investors, not due to fundamental factors. The sudden announcement by some securities companies to lower margin ratios has strongly affected market sentiment, although in reality the adjustment is only a few thousand billion VND, a very small number compared to the total outstanding margin debt of the entire market today.

According to him, this is clearly not a big enough reason to make the market fall so sharply when looking at the supply-demand and cash flow aspects. The main reason comes from many stocks that have increased sharply from 20% to 50% in just the past 1-2 months, so it is understandable that investors take profits to preserve profits and often cause temporary market fluctuations.

But this expert also noted that "profit-taking is not necessarily a bad sign", because this is the cash flow circulation mechanism: old cash flow that has been taken for profit will be replaced by new cash flow waiting outside. With record liquidity in recent times, the market can still absorb the amount of stocks sold well and the current correction (if any) will happen quickly and be healthier than signaling a negative trend.

He added that in the history of the Vietnamese stock market, there have been many sessions of deep decline right before the market rebounded strongly the next day. Sessions of decline like July 29 often come from behavioral psychological factors and not from any major macroeconomic or financial instability.

Source: https://nld.com.vn/hon-70000-ti-dong-do-vao-chung-khoan-den-tu-dau-196250729214057228.htm