In the Financial Street Talk show, Mr. Lu Hui Hung gave two tips for individual investors to increase efficiency when investing in assets in the context of many risks and fluctuations today.
Recently, investment channels have experienced significant price fluctuations. For instance, gold prices, after peaking at over VND 92 million per tael, has fallen relatively sharply so far. Meanwhile, the type of apartment real estate in Hanoi about two months ago, also had a price fever, but by this time the price has begun to slow down or decrease.
As for the securities investment channel, after the VN index increased to 1,300 points, the market has also turned around to adjust continuously. The continuous fluctuation of investment types has caused many investors in the surfing style to not make profits as expected, and even suffer losses.
Talking in The Finance Street Talk Show on VTV8, Mr. Lu Hui Hung, General Director, Phu Hung Fund Management Joint Stock Company, investing with the expectation of large and fast profits will have many risks, so investors need to have a financial plan, an investment plan that suits your risk appetite and limits the use of financial leverage, or if you don’t have much time, invest through reputable financial institutions.
Ms. Khanh Ly – the Finance Talk Show:
In recent times, we have observed a simultaneous increase in the prices of various asset classes, such as stocks, gold, and real estate in Hanoi. However, these markets have also experienced significant volatility, including rapid declines in gold prices, sharp stock market fluctuations, and high but illiquid real estate prices. What factors do you believe contribute to such strong fluctuations in asset classes?
Mr. Lu Hui Hung, General Director, Phu Hung Fund Management Joint Stock Company (PHFM):
That is a great question! I need to say the fluctuation of the investment channels essentially comes from one reason – the increase of the “uncertainty”.
When the market has no clear trend, people will have high uncertainty and become very sensitive to the news and economic data.
I take current AI booming as the first example. When every investor in the market believe that AI is the fourth industrial revolution and NVIDIA deserve a very high P/E, the trend very be going up very clearly and no big fluctuation.
Another good example is the gold price in Vietnam. When the inflation boosts the gold price around the world, Vietnam gold price has a clear uptrend continuingly. And now when the trend is become uncertain, gold price is expected to see stronger ups and downs in the second half of 2024.
Currently the investment channels in Vietnam are still face high fluctuation even the macroeconomic condition and company’s earnings are showing the recovering. Many negative factors, including the currency rate, the inflation, and the geopolitical risk around the world, continue to affect the investors’ confidence. So, when the uncertainty for the future remains, the investment channels will be up and down together with the change of the risk appetite. The trend will become difficult to follow and the investors may face higher risk for all kinds of investments.
In your opinion, is this a “normal” phenomenon in developed countries with advanced financial systems?
Fluctuations is normal in most of the time whatever in developing or developed financial markets. The change of asset price in different investment channels is affected by factors from prospect of economic and business condition, changes of government policies, the investor behavior, and the atmosphere of the market.
In fact, in an advanced financial system the information is spread efficiently, so the investment channels will react immediately to any change which will affect investors’ investment sentiment. The most well-known case is the electric vehicle marker – Tesla. This company’s stock has experienced sharp increase and declines in response to production update, earnings reports, and even the twitter message from CEO – Mr. Musk. In the most of the time, people are quite enjoy the fluctuation become the volatility can decide the direction after and then create excess gain in return.
But I need to remind that different investment channels will have different “Normal” fluctuation. An abnormal fluctuation will increase the investment risk. More investors, due to the speculation, will be attracted to join the market and then affect the stability of the expected return. One of the most famous examples is 10 Year US Bond. The consecutive 11 times interest rate hikes in 2023 turned the stable bond market into a speculative playground. More people jumped in to speculate the reverse of interest rate and face the impact of the abnormal fluctuation.
Vietnam gold price also provide a good case of abnormal fluctuation. From 2000 to 2023, the gold price in Vietnam just rose 28%. But just in half of 2024, the gold price already increases 20%. This big change brings high risk for the general investors.
After the recent fluctuations in gold prices, stocks or real estate in Hanoi, do you have any prediction that similar phenomena will occur in the near future?
As I mentioned in the first question, the fluctuation of the investment channels come from the degree of uncertainty. Now, with the global economic prospect is more predictive, I think the fluctuation will be relative lower than before but still quite significant with clearer direction.
Fluctuation with good direction represents the potential gain in the future. Based on this understanding, we can come to review our current most popular investment channels in Vietnam.
We think that gold investment will be less likely having bigger gain due to a better regulatory environment and the colling down of inflation concern. Buy gold still be a good investment to keep the purchasing power even but the potential to win a big gain in the near future is low. In contrast, accompanying with a much lower economic concern in the future, the stock and real estate market will greet a new wave of prosperity fueled by the reducing of uncertainty.
Real estate for sure will regain its growth momentum credited to couple years restructuring and the supports from the government. The transaction volume and the price all reveal that this market is heading to the recovery. However, due to the characteristics of real estate market, it still takes time to see a steady one-way value increase in the real estate investment. We believe that the stock price of the real estate companies will react the fundamental change first and can enjoy the benefit from the increase of certainty.
So, my major point to answer this question will be that in the following couple years, as the emerging market go back to a steady growth pace when US Dollar become weakening, we will see a good fluctuation coming from a steady increase of risk appetite. But to embed this good fluctuation in our investment, currently the best choice will be putting your money in stock investment channel. We all know that Vietnam economy is expecting to have a steady average 6% growth in the next 10 years. The growing transaction volume with clear economic prospect will boost Vietnam stock market and your asset value when the uncertainty is becoming smaller.
What are your recommendations of effective ways to manage personal finances when investing in risky and volatile assets?
There are two tips for retail investors to effectively manage the risk and volatility. One is Diversification and the other is Avoiding Leverage.
People always said that don’t put all eggs in one basket.
Diversification is to allocate your money in different investment targets to mitigate the impact originated from a specific holding asset. A fluctuated investment channel, such as current stock market, can provide you a higher potential return. But if your investment is too concentrated, you may be left behind when the stock market goes higher or suffer more when the market goes down. Let’s look back the time in the second half of 2022. For an investor invested 10m in Novoland only, he will face a 76% loss. But if this money was distributed evenly to FPT, NVL, HPG, and VCB in that time, the loss will be just 19%. That is a good case showing you how the diversification can reduce the volatility and risk of your investment.
The second effective way to manage the impact from the volatility of the investment asset is to avoid the leverage. Avoiding leverage will prevent the investors from overestimate their capability of risk tolerance and help them to reach a realistic investment target by time and by return. High leverage will force a good investment plan be distracted by high volatility inflated by the leverage. When you double your investment amount in a fluctuated investment channel, your risk and potential loss are also double. The leverage also causes big increase of your investment cost due to the interest expense paid for the money you borrowed.
As a professional asset management company, we know that investing in risky and volatile assets requires a deep understanding of trend identification and risk management. A proper asset allocation can greatly enhance an investor’s capability of managing personal finances. I need to say that for most of individual investors, it takes time to utilize the asset allocation and risk management skills in their investment activities. So, I strongly recommend the investors to combine their investment actions with the service provided by fund management companies like Phu Hung. If an investor builds his position in stock market by using a mutual fund, he can reduce the heavy burden about identifying the trends and managing the risks.
However, in Vietnam there are still many investors who remain unfamiliar with asset management and lack specific plans for personal finances. What do you think should be done to improve this?
There are two major reasons to explain why the investors in Vietnam are still unfamiliar with asset management and generally no plan for personal finance.
First reason is the lack of understanding about asset management and its benefit. Vietnam’s financial markets are still developing. The concept of asset management is relatively new. It takes time for general investors to get more knowledge and information about the benefit for introducing asset management concept to personal finance management. Not to mention reying on the help of an asset management company like Phu Hung to optimize their asset allocation and risk management.
I think it is understandable. Individual investors generally have no patience to absorb and understand the financial knowledge and product information. They normally rely on informal, media, or promotional sources to make their investments. Thanks to the development of trading technology, people now can buy and sell the stocks like shopping on the Shopee. But still face big difficulty to access to credible sources of financial advice and guidance. The result is that most of the time the investment decisions are not made with clear thinking about the personal finance planning.
The second reason is about psychological and behavioral factors. Inexperienced investors are often influenced by unverified news and rumors when making investment decisions. They areoverconfident and failed to realize that every investment decision will bring not just potential return but also the possible downside risk to the total asset. That is also the reason why the investors disregard or overlook about what benefit the professional asset management service can provide to them.
To improve investors’ knowledge and perception of managing personal finances, asset management companies must take the lead in introducing asset allocation and risk management concepts to the public. Indeed, showing good fund track records is the easiest way to quickly accumulate the AUM for a mutual fund. But the better way, for the long-term development of asset management industry, is to tell the investors why buying mutual fund can enhance their capability of managing personal finances.
There are some ideas a fund management company like Phu Hung can do by introducing its funds to the public. The most practical strategy is to reduce the investment thresholds to attract retail investors in line with us. Reducing the investment cost and lower the minimum investment amount are somethings we are doing now. We hope that fund products will not only be invested by high-net-worth investors but be utilized by those who with an average income level can achieve their financial goals in life.
In addition, we believe that the radical solution to enhance capability of personal finance planning is to educate the public how to manage their assets and do some proper investment fitted their financial capability. Phu Hung is planning various educational activities combining with marketing strategies an product development.Our target is to create an ecosystem in which the joiners can learn professional investment knowledge and utilize our fund products to reach personal financial targets. People in Vietnam now are getting richer and are embracing a bright future. How to increase the family asset value with correct investment knowledge will be the most important issue now.
Nguồn: cafebiz.vn