(VNA) Securities stocks are always the most sensitive group to the fluctuations of the general market. Due to the deep fall of the market over the past month, the market prices of securities stocks have plummeted by 30-40%.

The losses were even larger than the decline when the market hit a bottom during the outbreak of the COVID-19 pandemic. According to Agribank Securities Company (Agriseco), the group of securities stocks has very high volatility and is linked with the stock market’s movements that directly affect business activities.

The stock market recently dropped sharply in terms of both liquidity and value, so the significant losses of securities stocks prices were expected.

In the short term, Agriseco believes that the selling force still weighs on the group and shows no sign of ceasing, therefore, it is still ambiguous to determine the bottom of the group at this time. However, when the market shows signs of recovery, the securities group may have a better bounce than other groups. The price to book (P/B) ratio of this group is currently around 1x. Although the ratio is much lower than previous periods, it is a suitable level when the overall market is deteriorating.

With the volatility of the stock market in the third quarter, it is not difficult to forecast that all activities of securities companies will be affected.

Brokerage revenue may drop dramatically due to the overall decline in both liquidity and value. The average transaction value in the third quarter was only VNĐ16 trillion per session (658 million USD), a nearly 40% decrease over the same period last year. Some sessions even recorded the average transaction value of only 10 trillion VND.

Gross profit plunged due to rising competition, higher commissions paid to brokers, while transaction fees tend to be lower and lower.

Margin lending, which is considered the main source of income for securities companies, also shrunk. Margin debt balance of the whole market has decreased by 40% from the peak and is expected to continue to go down in the fourth quarter. The sharp decline of the market since mid-September until now has forced many securities companies to sell mortgages to recover loans when the margin ratio exceeds the prescribed threshold, making investors more cautious in using margin.

The financial advisory segment (IB) was adversely affected by the market’s movements. In particular, securities companies providing services associated with corporate bond issuance will be severely affected by recent developments.

Proprietary activities, including both stocks and bonds, faced challenges in the third quarter. Many companies may face the risk of losses in proprietary trading if they do not exit their positions in time when the VN-Index fell by nearly 6% in the third quarter. In September alone, the benchmark index lost nearly 12%.

While in the third quarter of last year, securities companies raced to report record profits, this year, many companies were unable to avoid losses or sharp falls in profits.

This year’s macro environment clearly does not support the business activities of securities companies when inflation and interest rates increase, while cash flows are withdrawn to serve production and business activities. Despite being priced at quite attractive levels because most of the leading stocks such as SSI Securities Corporation (SSI), Viet Capital Securities (VCI), and Ho Chi Minh City Securities Corporation (HCM) have dipped 70% from their peaks, this stock group was still under a sell-off force in recent declines.

Bui Van Huy, director of the HCM City branch of DSC Securities Corporation, told tinnhanhchungkhoan.vn that the valuation of the securities stock group was now much more reasonable and could be seen as cheap when it had been halved and tripled from the top. Currently, the P/B of the securities industry was only about 1.1 - 1.2 times and the price per earnings ratio (P/E) was only about 8 - 9 times.

However, the industry’s P/B is still higher than the bottom-making period in March 2020, when the securities industry P/B was below 1x.

According to Bloomberg, the Vietnamese stocks fell to the lowest level in nearly 2 years as selling pressure weighed and over took the market amid concerns about interest rate hikes. The VN-Index fell more than 18% in the past month, the biggest drop among stock indices globally.

As the market is forecast to confront many difficulties, the profit prospects of securities companies in the near future is hardly positive. Therefore, many experts agree that an attractive valuation is not necessarily a confirmation of bottom formation.

Nguyen Anh Khoa, head of Analysis and Investment Consulting Department of Agriseco Securities Company, said that although the group of securities stocks had decreased greatly, opportunities would open up for the securities group if the market regains momentum. However, with many difficulties ahead, it was necessary to be very selective about securities companies to invest in the current period.

"Securities stocks are already cheap, but it is unlikely the bottom," Khoa concluded.