When interest rate is low, the wheels of the corporate bonds market with high interest rates will run smoothly and attract new investors. This shows that the risk of an overheated bull market is built on a shaky foundation.
Wave of withdrawals
A real storm has appeared in the corporate bonds market. Bond investment funds have difficulty finding ways to meet the huge withdrawal demand of investors. This wave started to rise when the Tan Hoang Minh bond lot was canceled, and the misuse of capital sparked a race to buy back bonds before maturity date. Many investors bought bonds of Tan Hoang Minh through intermediaries and did not actually own the bonds. Therefore, now individual investors are confused and do not know who to ask, or how to get their capital back. When this information spread, the need to withdraw capital from bond investment funds was also sparked.
It is difficult to know how the pressure to withdraw really plays out, as most funds try to reassure investors as much as possible. Rarely at internal meetings one hears the real facts, such as at the end of October among members of the Vietnam Bond Market Association (VBMA). Some representatives of the Bond Fund Management Company admitted that on an average in the two weeks since mid-October, bond funds were withdrawn by 2% to 3% Net Asset Value (NAV) per day.
Another rather detailed statistic of Techcom Bond Investment Fund (TCBF), the largest bond fund in the market at the moment, is that from 30 September 2022 to mid-November 2022, the amount of capital withdrawn from bond funds was about VND 9,906 bln. In this, the most withdrawn amount was the TCBF fund with VND 6,359 bln, followed by the MBBond fund managed by MB Capital, worth VND 1,514 bln. The SSIBF fund managed by SSIAM also withdrew VND 986 bln.
As early as mid-2020, the writer warned about a wild bonds market that was growing bigger and bigger by the day. Back then, bank credit officers tried to convince ordinary savers, from small time traders to retired people who had accumulated several hundred million dongs, to buy corporate bonds.
With the issuance scale of hundreds of thousands of billion dong and growing larger from 2018 to the present day, no intermediary organization can absorb it all. Individual corporate bonds are launched according to the following process. First the issuer sells primary packages to a few intermediaries. Second, these institutions subdivide bonds into derivative products or push them into bond funds. Third, banks, securities companies, and even the issuers' backyard companies try to reach the customer base of depositors. Fourth, ordinary individuals are convinced to contribute money to buy bonds.
When the deposit interest rate environment is low, persuasion becomes easy. The savings interest rate of only 3% to 4% per year is compared with the bond interest of 8% to 9%, even 12% per year in 2020, but the consultants intentionally forgot to mention risk factors. Naive savers are lured to buy bond investment fund certificates with a commitment offer to enjoy high and safe interest rates and withdraw money at any time. Bond funds mobilize huge resources because of such amateur investors.
One proof is that in the report of the third quarter of 2022 of TCBF, there were 20,443 investors, accounting for 46.73% of the total number of fund shareholders, holding just under 5,000 fund certificates. This number accounts for 1.99% of the total number of certificates in circulation. If including the number of investors holding 10,000 certificates or less, 61.5% of shareholders only hold 5.77% of the fund value.
In simple words, the number of investors contributing capital are of several tens of millions or hundreds of millions to several billion dongs account for the majority of the fund. Another estimate raised at the meeting of VNMA is that about 300,000 individual investors participated in buying corporate bonds, including open-ended funds that receive entrusted investment through electronic platforms such as Finhay.
The interesting point is that when the corporate bonds bubble burst, the blame game began, from the fund representatives themselves at the meeting of the VBMA giving one of the reasons for the high withdrawal of capital from bond funds as the psychology of investors who considered buying bond fund certificates as savings deposit. This is despite the Ministry of Finance repeatedly warning that investment in corporate bonds is not a savings.
However, investors still confuse these two basic concepts. The fact that amateur shareholders realized that investing in bonds was risky, even at the cost of losing everything, they now are rushing to withdraw their money. It is a normal reaction and a legitimate act of self-protection. However, the drying up of bond funds right now is an inevitability waiting to happen.
The corporate bonds market developed far too quickly, based on a majority of people who did not have enough information and knowledge, so the collapse was just a matter of time. If there are no shocks like the Tan Hoang Minh case or tightening of the legal framework, this bubble will still expand in coming years, and hundreds of thousands of billions of bonds will be issued through brokers trying to con millions of ordinary people. The consequences of this will in time prove to be incalculably disastrous.