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Investor sentiment in Vietnam financial market (Part I)

Friday 26, 06 2020
In the market, investors' psychology always dominates the stability of the market, especially for financial markets in Vietnam.
Investor sentiment in Vietnam financial market (Part I)

1. Psychological characteristics of investors in Vietnam's financial market

An investor is a person who carries out investment activities in different market segments, in different forms to gain the expected benefits. Investors include both institutional investors and individual investors. In each economy, investors play a very important role because they are exploring opportunities for investment in the economy, helping to supplement resources for development investment, thereby helping boost the economy - developed society.
 
The psychology of investors in the financial market is a reflection of the attitude of investors before the movements of the financial market. Any movements of the financial market have an immediate impact on the psychological movements of investors. In Vietnam's financial market, investors have the following psychological characteristics:

  • Overconfidence

The common psychological characteristic of Vietnamese people is dynamic and flexible, with this mentality helps Vietnamese people to adapt to all situations. In the financial market, the dynamism and flexibility will help investors to be confident and respond very quickly to market movements, however, due to certain limitations on market awareness (both in terms of trading and market information), so this flexibility and dynamism are easy to tilt to extremes that are easily fluctuated. With the tendency to easily fluctuate before abnormal movements of the market, it will make the financial market shake more, then the monetary and financial policies will be reduced.
 
The overconfidence psychology of investors leads to the kind of overly optimistic or pessimistic psychology. Optimism is a positive state of mind, it helps people overcome adverse situations, thereby helping people overcome all difficulties and challenges. However, if overly optimistic is not necessarily an advantage, because it is possible that people are not fully aware of the barriers, or in other words, this mentality is very easy to make people have the attitude of "defying ”. With disrespectful attitude, when faced with insurmountable barriers, it can lead people to have pessimistic psychology, depression, and easily bogged down with pessimistic psychology. In the financial market, optimistic psychology will help investors when losing business nor lose their spirit. However, if investors are overly optimistic, it is very easy to get caught up in business activities even though they are at a loss and do not know the stops and once investors lose too much, it is easy to switch to. Other extremes are excessive pessimism. Excessive pessimism of investors will cause the financial market to freeze for a long time, then the monetary and monetary policies will be reduced.

  • Regret

The psychological characteristics of Vietnamese people are that they live emotionally based on Eastern culture as well as from the difficulties caused by natural disasters and enemies that people always face. The Vietnamese are always united with each other, the calculation "win-win" is always set in community relations. In this respect, this is an advantage, it allows communities to connect with each other and people less personal calculations. In economic activities in general, especially in the financial market, this psychological characteristic strongly influences the decisions of investors, at that time, investors are inclined to personal factors to make decisions. investment (instead of making investment decisions on the advice of reason). Moreover, the "single-minded" philosophy of life easily leads to respect for each other in financial relationships, ignoring the obligations of responsibility. Lack of financial activity easily leads to the risk of financial collapse, because philosophy will make people with a "gullible" mentality easily enticed into pitfalls finance.

  • Herd mentality

The race to raise deposit rates of commercial banks comes from the behavior of depositors, the influx of people waiting at jewelers to buy gold, waves of stock trading, and early activities. foreign currency ... the past years show that "behaving in a crowd" is a psychological characteristic of Vietnamese people in the financial market. This psychology comes from many reasons: little experience and low professionalism when participating in the financial market, information on the financial market is not transparent, insider trading has not been well controlled ... Investors usually behave according to the crowd. This mentality has continued to cause panic attacks in the financial market. Since then, it has required the authorities to know the trend of operating the crowd on the basis of having to have a good head in order for the financial policies to take effect.

  • Preserve

In Vietnam's financial market, investors are often the ones with savings and how the distribution of these savings depends entirely on their psychological state. When investors have pessimistic psychology also means that they are less confident in financial policies, or in other words pessimistic psychology is the reaction of investors to the policy environment and it also forms psychology of self-protection - an indispensable problem for investors in the financial markets lack transparency. If this psychology becomes complicated, it can create another new type of psychology - the policy against psychology: with this psychology, investors always believe that the issuance of financial policies is just to prohibit. guessing, forcing, arresting investors in unfavorable frameworks ... and so investors are always looking for ways to counter the policy, circumventing the policy as long as it is beneficial to individual investors. Coping with this kind of psychology, policymakers in the financial market must not only care about issuing policies to be beautiful in terms of content but also need to pay attention to how to close the gaps in the policy documents that investors can take advantage of for personal gain, causing harm to the common interests - making the effectiveness of fiscal policy weakened.

  • Based on experience

There is an opinion that Vietnamese people are of intelligent nature - expressed in international excellent student exams in most high school subjects or vocational aptitude tests. However, there are also many ideas that Vietnamese people are not smart, but just clever, showing that Vietnamese people are only good at imitating, following but less likely to be creative like Chinese, Japanese Ban, Korea ... This is the kind of psychology that likes to follow the path of Vietnamese people. In the financial market, this sentiment makes it difficult to deploy new financial instruments.

II. Factors governing investor sentiment

  1. The capacity of investors is limited

The capacity of investors can be seen from two angles, namely: qualification and investment experience. The results of research and surveys on the capacity of investors on Vietnam's stock market show that:

+ About education level: up to 76% of securities investors have college, university degrees. Moreover, investors mainly work in finance - banking.

+ About investment experience: up to 66% of investors on Vietnam's stock market have very little experience (only from 1-5 years of experience), while investors with over 5 years of experience are only about 23%.

Thus, it can be seen that, although investors in the financial market have high levels of education, so in principle, the trend will be more involved in investment activities in the financial market. However, having little investment experience in the financial market will be a major barrier for investors to participate in financial investment activities in Vietnam. This shows that, although highly qualified, inexperienced investors will make investment activities very unpredictable, threatening the stability of the financial market, especially the stock market.

  • The age of investors

According to the figures of the Ministry of Planning and Investment in 2019, the age of investors in the financial market is showing signs of aging, specifically 

+ 3% of investors are under 25 years old 

+ 33% are aged 25-35 

+ 56% are aged between 36-55 

+ 8% are over 55 years old. 

This means that the majority of investors in Vietnam's financial market are quite high, which has a great influence on the issue of investment account allocation.

Investor sentiment in Vietnam financial market (Part I)

  • Investors mostly are male

With a rate of more than 65%, investors in the financial market today in Vietnam are still mainly men. Studies in the past few years show that, in the financial market, men often have a higher level of confidence in investing than women, but the level of success in financial transactions is low. than. This means that the higher the proportion of men who invest in the financial market, the greater the degree of failure in investment activities.

  • Psychological instability

As in characteristics, generally Vietnamese investors are in an overly optimistic mood and with this mood, the trend is that investors making investment decisions are usually less careful. Contrary to the overly optimistic mood is the overly pessimistic mood - this is a "bad" mood and with this mood, generally, investors are often too careful in their investment decisions, causing the prolonged stagnation of some segments of Vietnam's financial market in the last few years.

Alice Hoang - Vietnam Credit

Categories:
Investment

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