Last weekend, the Vietnam Commodity Exchange (VNX) held a seminar titled “Vietnam’s Economy and Investment Channels in 2011”. According to the speakers, commodity trading is emerging as an alternative investment channel to traditional ones, and it is expected to become more attractive and active in the coming time, provided liquidity is improved.
A New Choice
Dr. Bui Nguyen Hoan, Head of the Securities Commission’s representative office, stated that commodity trading is a high-level specialized product of the financial market and an attractive investment channel. While real estate and securities have been favored by investors due to their mass appeal, commodity trading is still relatively quiet, as it is a new concept. In the future, as it picks up, these investment channels will indirectly influence each other based on the principle of interconnectedness.
Mr. Hoan evaluated that commodity trading even has many advantages over traditional investment channels, such as having tools to increase capital turnover, increase profits, and diversify investment portfolios. Commodity trading does not require large capital, uses financial leverage, and can seek profits from market fluctuations in both directions. This makes commodity trading more attractive than stock trading, where investors can only seek profits when the market goes up.
Master Ding The Hien, Director of the Institute of Applied Information-Economics, stated that Vietnam has strengths in agricultural products such as rice, coffee, rubber, and pepper. Furthermore, globally, investors are increasingly interested in basic commodities because these are investment channels that preserve assets and help investors combat inflation. Basic commodities have an edge over gold, as they meet essential human needs. Additionally, because the price fluctuations of these commodities are less dependent on investor sentiment like in stock markets and the degree of globalization is vast, they create a fair and transparent investment environment.
VNX has introduced coffee and rubber futures contracts for trading. These are essential commodities globally, with high demand and consumption levels. Mr. Hien believes that the coffee and rubber futures products are suitable for risk-taking investors who want to seek large profits from price fluctuations.
Mr. Nguyen Duy Phuong, CEO of VNX, stated that VNX plans to bring more Vietnamese agricultural products with export advantages onto the exchange. Currently, there are still many issues in the agricultural business chain, as the production and consumption process remains traditional, leading to problems like “good harvest, low prices.” Additionally, due to small-scale, spontaneous production and business, quality is inconsistent. The establishment of VNX connects production directly with market demand, standardizing the quality of Vietnamese goods traded both domestically and internationally. Participating in commodity trading is very beneficial for producers, as it helps guide farmers on what and how much to produce to match market needs.
Liquidity Bottleneck
Mr. Hoan pointed out that while profits can be made from short selling, the risk is significant if it goes against market trends. “The biggest risk when choosing commodity trading as an investment channel is liquidity. Therefore, it is necessary to create trading regulations that facilitate investor participation while helping the market grow larger and improve liquidity. If this is done well, commodity trading could explode,” Mr. Hoan said.
In an interview with DTCK, Mr. Hien mentioned that, since commodity trading is still relatively new in Vietnam, attracting and introducing it to investors will take time. In the short term, to enhance liquidity, VNX is connecting directly with exchanges worldwide, building departments to match domestic orders with those on international exchanges. Additionally, attracting large coffee and rubber import-export companies to participate in the exchange with investment and risk management goals will help increase trading volume and liquidity.