Swimming with shark
Last updated: Saturday, December 5, 2009 |
VnnNews – Predatory stock ‘sharks’ hunt in packs, grouping together to invest big money small-time companies to boost share prices and feast on profits.
Big-time investment “teams” whose members are known as “sharks” have been fixing stock prices by investing via several different accounts to manipulate market sentiment, a Thanh Nien investigation has found.
Though Vietnamese law only allows stock market investors to open one account at one brokerage firm, sharks use accounts opened by their friends and family to place buy and sell orders.
With combined financial resources of up to thousands of billions of dong (dozens of millions of dollars) bolstered by leverage from brokers, a team can fix the price of any stock with a flood of sell or buy orders.
Saigon Securities Inc. stocks were hit by a team of sharks earlier this year. The predators were able to push the price of the major blue-chip public company up nearly four-fold from mid March to early June, a shark in Hanoi told Thanh Nien.
But in many cases, the sharks focus less conspicuously on small or newly listed stocks. Thanh Nien found out that sharks had doubled stock prices at least three Hanoi-listed Song Da Corporation subsidiaries, as well Vinavico Company and the Education and Finance Investment Company, for short periods of time this year.
A shark told Thanh Nien that small companies with a chartered capital of less than VND50 billion were often the targets of big predators. The ideal firms to “hit,” he said, were those with 50 percent stakes owned by board members and other executives who are not allowed to sell within six months after the issue. He said Vietnam’s stock environment was perfect for sharks because it nurtures rumors that easily fuel price hikes.
At such companies, board members and executives’ relatives usually hold another 20 percent, so only about 30 percent of shares are actually traded in the market, a broker whose clients are mostly sharks told Thanh Nien.
“[Sharks] only need to buy about 1-2 million shares to be able to manipulate the market prices of that stock,” said the broker, who refused to be named.
The sharks’ manipulative power has become so strong that small investors, who once based their decisions on foreign investors‘ moves, now bet on shark intelligence.
VIPs
It’s no wonder that many brokerage companies who enjoy hefty fees from big-time investors welcome sharks as VIPs, offering them many privileges that in turn help multiply the sharks’ strength.
Since many brokerages are owned by banks, they are also able to offer attractive leverages. Most sharks only need to provide 20-30 percent of a security’s value for a purchase, the rest is funded by the brokers. In some special cases, the leverage could be as high as 9 to 1.
“It’s the leverage that helps create ‘super investors.’ Cash can’t,” a Hanoi-based shark told Thanh Nien, adding that very few investors actually possess hundreds of billions of dong in cash.
While normal investors can only sell a stock four days after they buy it, many brokers also let sharks sell a stock within three days of purchase, allowing them to make quick profits or retreat in times of strong market fluctuation.
Sharks and brokers have also joined hands to spread rumors and “reveal” information that can help them fix prices.
Such “intelligence” is in fact highly valued by many opportunistic investors who do not care about studying the official statistics of listed companies in which they want to buy stocks.
One such investor, known only as N.V.T., said the purchases made on “mainstream” stock consulting are like “buying government bonds.”
“Following sharks is risky but hugely profitable,” he said.
The limits of power
However, one shark, who preferred not to be named, told Thanh Nien that the big investment teams were in fact not that powerful.
“[Big-time investors] can fix prices successfully mostly because they follow market trends to inflate prices of a certain stocks. It’s not that they can manipulate the market at will,” she said.
“When the market becomes really bearish, not even the big-timers, nor even god, can push stock prices. Fleeing is the best policy then.”
Indeed, many sharks admitted that the bear market since late October had left many of them “soaked in blood” as their leverages – their beloved weapon – turned out to be double-edged swords.
Black Friday
The 23rd of October this year is a painful memory for many sharks. The VN-Index has been bearish since then, falling from the peak of 626,14 to under 500 this month. Within just 10 days of that dark Friday, the index plummeted by nearly 60 points.
“For 10 consecutive days, I lost VND1 billion each. It was so painful,” said a shark in Hanoi known as H. Stock brokerage companies, which had treated big investors like kings, began preying upon the predators to recover their loans.
H. said leaders at the brokerage where she had accounts told the media that they did not force investors to sell when the VNIndex fell.
“Indeed they did not have to force anyone,” H. said with sarcasm. “On their own, they sold investors’ stocks to get claim their debts.”
Many investors who had been leveraged 4-to-1 said their brokers sold their stocks after just two bearish sessions. This practice usually ignites a vicious circle: other investors, seeing bigger ones selling en masse, also rush to sell, which drives prices further into the deep south and thus inflicts even more damage to the sharks’ pocketbooks.
At the same time, the central bank recently asked brokers to strengthen a ban on short-selling stocks, reiterating that investors can sell only stocks that they own in their accounts, meaning the soonest they can sell a stock is four days after they buy it, nullifying the sharks’ advantage of first sale.
As a result, sharks have “bled all over the floor,” said an investor who requested anonymity.
Fall from grace
In a bearish market, big speculators are always ready to break their relations with, or even betray, their “teammates,” brokers told Thanh Nien.
“When the market is bullish, they work closely together to push prices and fix prices. Everyone is too happy looking in the same direction. But when the wind turns, everyone cares only for his fate,” a deputy CEO of a Ho Chi Minh City-based brokerage said.
Some sharks told Thanh Nien their “shoals” broke a few days around October 23 when some “teammates” secretly sold their stocks at low prices to cut losses while the teams had agreed to push prices to higher levels.
In one such case, a big-time team agreed to push Ha Nam Mineral Company (KSH) stock prices to VND100,000 apiece, a shark told Thanh Nien. But some members who sensed a market U-turn coming, secretly sold the stocks at just VND82,000. The team’s whole plot then collapsed, as did the stock price, which now stands at just around VND50,000.
Intelligence on big-time teams’ plans to fix prices, once eagerly sought, embraced and followed by small investors and even some brokers, is now shunned as fraudulent rumors the biggies set up to sell their own stocks.
In fact, the trust in the “biggies’ stock market control power” vanished within a week of October 23, some investors said. During that week, small investors more than once pinned high hopes on the return of the bull market based on rumors that sharks would push the prices of a certain number of stocks. It turned out later, however, that it was a trick the sharks used to clear their own stocks.
VietNamNet/Thanh Nien
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Sharks a valuable part of the food chain: Brokerage director
Le Dinh Ngoc, general director of the Hanoi-based Thang Long Securities Company said “shark” investors played a valuable role on the market, describing them as “professional investors.”
“They create demand. They merely invest in stocks and do not do anything else.”
Ngoc said the risks that these investors caused to the market should be considered side by side with the contributions they make.
His counterpart Nguyen Dinh Phong from VNDirect Securities Joint Stock Co., also in Hanoi, said shark investors created high liquidity and made trading more active.
These investors are also believed to enrich their brokerages as they pay brokering service fees of VND500 million to VND1 billion a month, a senior executive at another brokerage company said.
However leaders from other brokerages such as Bao Viet and Ban Viet said brokerages that offer privileges to VIP investors have robbed law-abiding brokerages and have helped big investors knock out smaller ones.
Nguyen Hoang Long, a small investor in Hanoi, said “When the market was rising, I could never buy although I tried many times, and I couldn’t sell either when the market was going down.”
Another investor in Hanoi named Le Thi Huong said in anger that “the stock market should be a transparent place that offers equal chances for anyone.”
A senior official from the State Securities Commission, who requested anonymity, told Thanh Nien “It is not that we don’t know about the pricing tricks, but investigating these claims and finding evidence to punish people involved is not easy.
“The investors can say they bought a certain stock because they found it promising. That’s not violating the law, for sure.”
A senior investigative officer from the commission said an investigation was possible but needed to be planned slowly and carefully, otherwise the commission would be shamed if both investors and brokerages manage to evade punishment.
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