Speculating on the stock market a risky business

Shares of Japan Vietnam Medical Instrument Co (JVC) were traded at the floor price for most of June's trades, on the gossip that its former chairman cum CEO Le Van Huong was arrested for deceiving customers. — Photo vnexpress

HA NOI (Biz Hub) — Speculating on rumours in the stock market can earn you quite a fortune, but it can also drive you to bankruptcy.

JVC's price nosedived from around VND22,000 per share in early June to just VND7,600 on July 1 among shareholders' bewilderment. JVC recovered and hit the ceiling in the last three sessions on Monday, although its shares were put on warning status by the HCM Stock Exchange from July 3.

The company released information to investors three times in June. On June 12, it refuted rumors surrounding a project in Binh Dinh Province. On June 21, it announced it would dismiss Huong and appointed a new chairman and CEO. Then it gave notice from the investigation agency about the detainment of Le Van Huong for customer deception.

However, both foreign and domestic investors were unsure about what had happened.

"We do not know the specific reason why Huong was arrested, and we have heard many different rumors, including that he changed the stamps on medical devices," a representative of major shareholder DI Asian Industrial Fund, which holds almost 20 per cent of JVC's stakes, said at the company's unusual shareholders' meeting on Monday.

New Chairman Hosono Kyohei, also an equity representative from DI Asian Industrial Fund, apologised to investors for the fallout from the prosecution of Huong. He also said the company could not answer investors' questions related to its financial problems at the present time.

JVC is an example of a rumour that turned out to be true, but there have been a lot of ungrounded rumors in the past, which are often related to big companies with high liquidity in the market.

Serious damage

One "well-known" rumor that caused serious damage on the stock market was the arrest of the chairman of Bank for Investment and Development of Viet Nam (BID), one of the biggest banks in Viet Nam, Tran Bac Ha in February 2013. The stock market lost VND29 trillion ($1.33 billion) in the day after the news. Two investors were fined later for spreading false rumours online.

Several years ago, some leaders of big businesses were favourite subjects of misleading arrest rumors, including the chairman of Masan Group (MSN) and the CEO of Saigon Securities Inc (SSI).

Shares of the companies related to litigation or bankruptcy rumours also fall quickly. Examples from the past two months include Dat Xanh Real Estate Service & Construction Corp (DXG) and Hoang Anh Gia Lai Co (HAG).

According to Alan Phan, former president of Hong Kong-based Viasa Fund, creating a rumour is easy in underdeveloped markets, due to the lack of transparency. Investor sentiment here is often fragile and they trade on herd mentality. — VNS