Reduce individual investors to avoid consequences

Individual corporate bond market: Reducing individual investors to avoid consequences

Economic experts warn that the proportion of individual investors participating in investing in individual corporate bonds should be gradually reduced, otherwise it will cause serious consequences.

Losing money, who can individual investors complain to?

While the story of tens of thousands of investors in Tan Hoang Minh and Van Thinh Phat bonds has not yet cooled down, thousands of other bondholders are also having to accept the extension and postponement of bond debt, anxiously waiting for the maturity date. Individual losses due to bond investment is not a unique story in Vietnam.

Mr. Do Ngoc Quynh, General Secretary of the Vietnam Bond Market Association, said that 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 irresponsible government for allowing businesses to issue bonds, and the credit rating agency also gave the wrong rating.

Following the scandal, Hong Kong introduced a mandatory tool in the offering process that required a list of all risks for financial products, requiring investors to read and sign, fully accepting the related risks.

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

Mr. Nguyen Anh Minh, Deputy Head of the Bond Registration Management Board, Vietnam Securities Depository and Clearing Corporation (VSD), said that in the bond market, the role of professional individual investors is very important. But in reality, investors are considered professional, but the definition is not strict, only need a confirmation from a securities company to be considered a professional investor.

On the other hand, when businesses issue private offerings to individuals, most of them only care about offering as much as possible, and do not care whether investors have enough knowledge or judgment about the business or not.

Usually investors buy based on the advice of brokers or relatives. This leads to many consequences when the issuer cannot guarantee the ability to repay the debt, individual investors suffer losses.

“In my opinion, for the corporate bond market to develop sustainably, it is necessary to improve the knowledge of individual investors. Individual investors are encouraged to authorize agents to learn more about bonds and take responsibility for the products they offer to investors,” Mr. Minh suggested.

Encourage individuals to invest through funds

Mr. Hoang Van Thu, Vice Chairman of the State Securities Commission, said that in the near future, the Commission will have regulations to guide small investors to invest in stocks and corporate bonds through funds.

“The violations that occurred in the market all fell on the group of investors with limited risk assessment ability. Therefore, the State Securities Commission is studying the subjects of private bond issuance, aiming at professional institutional investors to enhance professionalism and risk assessment. The Commission will also strengthen fund activities, encourage the opening of more funds. We expect that the revised regulations will be approved by the National Assembly in October 2025 and take effect from January 1, 2025,” said Mr. Thu.

In fact, there is no financial product without risk, just more or less. Each investor needs to establish his own risk appetite based on his knowledge. Building a mechanism to ensure that all investors have professional knowledge is very difficult.

In the current period, management agencies must develop targeted policies, appropriate to the context, with a framework to reasonably protect the interests of individual investors, but cannot protect them completely.

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

In fact, the risk with corporate bonds is not necessarily due to the investor's weakness in evaluating and appraising the project or the issuing company, but often due to objective factors. Sometimes, a bond issued has a good business plan, but if it encounters market risks, the issuer cannot make payments on time.

Not only corporate bonds, but it must be understood that no investment channel is absolutely safe. However, gradually reducing the proportion of individual investors participating in individual corporate bond investment is the right direction.

“Experience from other countries and the reality in Vietnam shows that individual investors should not be encouraged to buy individual bonds. This is a channel that the Government must 'correct', otherwise it will leave 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 education for individual investors, Dr. Can Van Luc, an economic expert, said that the awareness and level of understanding of stock investors in general and corporate bond investors in particular are still limited, leading to the possibility of a herd mentality, with investors only interested in interest rates, regardless of risks.

“Individual investors need to improve their knowledge and skills in personal financial management, especially about investment products, regulations on the stock market and corporate bond market, and fully understand information about the issuing organization; possibly through institutional investors to make the right investment decisions,” Mr. Luc recommended.

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