Bafi3182 individual reserch project (a3)x (sem a 2022) _ Individual research project (Week 12) (50%) (82%)

BAFI3182-FINANCIAL
MARKET AND
INSTITUTIONS

ASSESSMENT 3

INDIVIDUAL RESEARCH PROJECT

Lecturer Huy HDV
Group 09
Type of Assignment
Due date Individual Research Report (50%)
Word Count 20 May 2022
2500
Pages
13

0

Table of Content

PART A: INDIVIDUAL RESEARCH REPORT.......................................................................2
I. ABSTRACT ........................................................................................................................2
II. INTRODUCTION ..........................................................................................................3
III. LITERATURE REVIEW...............................................................................................3
1. The impacts of SARS-Covid-2 epidemics on the stock market performance .......3
2. DETERMINANTS AFFECT THE STOCK MARKET AND STOCK PRICES.....7
a. Inflation rate................................................................................................................7
b. Interest rate..................................................................................................................8
c. Exchange rate..............................................................................................................9
d. Investor sentiment.....................................................................................................10

IV. CONCLUSION..............................................................................................................10
V. REFERENCES.................................................................................................................10

PART B: INDUSTRY TALK.....................................................................................................13

1

PART A: INDIVIDUAL RESEARCH REPORT

How does the Covid-19 Pandemic impact the stock market
performance?

I. ABSTRACT

This study aims to investigate and analyze the impacts of the COVID-19 pandemic on
the equity market (stock market) performance in some most affected countries around the world
in general and Vietnam in particular, based on the number of confirmed cases and deaths, as well
as several relevant determinants such as inflation rate, interest rate, exchange rate, and investors’
sentiment. This research relies on panel-data regression models to determine impacts of the daily
expansion in the number of COVID-19 affirmed cases and deaths during pre-lockdown and
lockdown daily stock returns of Vietnamese listed firms. It is confirmed that the COVID-19
pandemic places negative influences on the overall economy and equity market worldwide,
including in Vietnam. Ultimately, this paper has discovered that the Vietnamese stock market
performs oppositely between pre-lockdown and lockdown periods while their stock market has a
sign to gradually rebound since the nationwide lockdown. Furthermore, Vietnamese stock
performance and its return acted heterogeneously in different market industries during the
COVID-19 boom.
II. INTRODUCTION

COVID-19 pandemic-a large-scale outbreak of infectious disease originating in

Wuhan, China, not only disturbs the health status of the population and significantly knocks out
domestic and international trading in most countries worldwide, including Vietnam (WHO
2020). Changes in macroeconomic variables like commodity demand and supply bottleneck;
higher unemployment rate, the sharp drop in GDP, and rising uncertainty substantially threaten
many listed companies' survival and their further sustainability, even some are bankrupt. This
seriously reduces both businesses' and individuals' income and destroys investors’ confidence in
holding stocks. Thus, the pandemic hit a painful blow to both the national and international stock

2

markets, causing great volatility in overall stock markets negatively (Al-Awadhi et al 2020;
Alfaro et al 2020; He et al 2020; Zhang et al 2020).

This research will analyze and evaluate impacts of the COVID-19 crisis on the
Vietnamese stock market performance, both internationally and domestically. To have a
comprehensive understanding of COVID-19's negative influences on the Vietnam equity market,
this paper determines four relevant factors such as inflation rate, interest rate, exchange rate, and
investors’ sentiment. Additionally, briefly inform that the Vietnamese stock market starts to be
thriving since nationwide lockdown due to successfully controlling the pandemic and rebounding
its economy.
III. LITERATURE REVIEW

1. THE IMPACTS OF COVID-19 PANDEMIC ON THE STOCK MARKET
PERFORMANCE

a. International outlook
With the emergence of the COVID-19 pandemic, the world’s stock markets had to

confront substantial negative fluctuations. Hence, most stock market indices all over the planet
have documented their greatest one-day plunges on record, while no sector has been left

unharmed, but each sectoral stock market will be affected at different levels. Ozil and Arun
(2020) underlined the trend of the USA stock market has fallen below 30% from its peak in Mar-
2020. The evolution of new Coronavirus varieties puts higher tension on stock markets of the
United Kingdom, Germany, Brazil, and Columbia which instigated those to get more deteriorate
than the U.S, with diminishes of 37%, 33%, 48%, and 47%, respectively (Fernandes 2020).

The expansion in the number of COVID-19 confirmed cases and deaths is related to a
significant increase in the illiquidity and volatility of the world equity market, which debilitates
the stock returns of most listed companies engaging the entire stock market (Chen et al 2009).
Results of the Kartal quantile regression model implementation validated the negative correlation
between stock market indices and the ever-increasing COVID-19 confirmed cases and deaths in
East-Asian countries (Kartal et al 2021). After resulting, this demonstrated that Covid-19 high-
spreading waves were demolishing and stagnating all-inclusive equity markets' potentialities.

Covid-19 epidemic hit psychological shocks for investors. The emergence of
economic losses and higher unemployment rate created triggered anxiety and pessimism for

3

investors about their future incomes when they’re holding higher-risk securities (He et al 2020;
Liu et al 2020) Correspondingly, many decided to turn to “safe-haven assets” such as precious
metals (gold and silver), currencies (US dollar and Swiss franc), and US Treasuries (T-bill and
T-bond) to mitigate risks. This economic depression initially prompted a massive selloff in stock
markets as investors transferred risky stocks into safe-haven assets to safeguard their riches
(Bofinger et al 2020; Wyplosz 2020). Thus, stock prices will fall, and stock markets have been
struck more harshly by the COVID-19 hit (Adekoya & Nti 2020). Potential yields gradually
decrease as investors make less money on the difference between the bid and ask prices while
holding debased stocks.

b. Vietnam

Vietnam’s stock market is made up of 2 main stock exchanges: the Ho Chi Minh
Stock Exchange (HOSE) and the Hanoi Stock Exchange (HASTC). Due to the lockdown in the
domestic trading and international business, there was a stagnation economy, and a large-scale
financial crisis emergence caused investors’ worries and bewilderment, reduced their confidence
in holding stock, and led to fluctuations in Vietnamese stock market. Prices of most stocks
trading on Vietnam securities market plunged in Q1-2020. During the trading session in Mar-
2020, the VN-Index fell by 28% compared with 31 Dec-2019, bringing about a GDP deficiency
of USD 37.4 billion of the Vietnam equity market capitalization (Dao and Gan 2021)

4

According to Table 1, the average returns (RE) of all stocks were negative during the
study period (Covid-19 outbreak period) demontrated for a downhill stock market in Vietnam.

Table 2 records the random-effects panel-data regression results of models (1) and (2)
(Figure 1). This table consolidated results that the daily number of confirmed cases and deaths
increased in Vietnam (CASE) considerably and adversely influence stock prices in the general
market index and relevant sectors, as well as sluggish stock returns of nearly all Vietnamese
firms on HASTC and HOSE (Al-Awadhi et al 2020).

The reactions of the stock market to the epidemic aren’t homogenous among different
sectors and industries and stock market status can be varied by item supply and demand changes.
Commodity prices can rule related stock prices positively, while demand and supply of
commodities can vary their prices. Covid-19 waves caused a decrease in both aggregate supply
and aggregate demand in general. However, in fact, there will be inequality in different

5

commodity demands assuming in the bottleneck supply scenario. If revenues rise due to high
commodity prices caused by shortage (D

costs), which pushes up the stock price and vice versa.

Schoenfeld (2020) discovered industries including gas & petroleum, garment,
transport, machinery, hospitality, and wholesalers’ sectors suffered heavy effects on their stock
markets because distancing isolation and unnecessariness of use them during SARS-Covid-2
occurrence diminish those sectors’ demand and their prices, led to huge revenue and profit loss,
which make their stock prices fall and impair their stock markets. Conversely, biotechnology,
food & beverage, healthcare, and pharmaceutical industries were positively impressive. Those
demands rise and gradually push up their prices, so the related stock of companies engaged in
those industries will increase, expect for positive returns. On HOSE, the financial sector was the
worst affected by Covid-19 because of the excessive emergence of non-performing loans and
massive deposit withdrawals (Dao & Gan 2021).

The Vietnamese government timely and decisively lockdown and imposes bans and
restrictions to reduce market crash risk, curtail volatility and protect the market stability. Since
the Vietnamese government declared successfully control the COVID-19 spread, the Vietnam
stock market has rebounded rapidly. On the HOSE, 55% of the total stocks listed expressed
positive performance (Giang & Yap 2020).

Looking into Table 2 data, variables D_BFLOCK are negative and significant at 1%
for both HOSE and HASTC proving adversely negative influences of Covid-19 on Vietnamese
listed firms’ stock return pre-lockdown. While variable D_LOCK is positive and significant at
1% for both HOSE and HASTC demonstrating the positive effects of Covid-19 lockdown on the
stock performance. The outstanding presentation of the Vietnam stock market during the
lockdown derives from the confidence and trust of investors in the Vietnamese government to
offer opportune actions to fight against the pandemic successfully (Dao & Gan 2020).

6

2. DETERMINANTS AFFECT THE STOCK MARKET AND STOCK PRICES

a. Inflation rate

The ongoing pandemic triggered inflation as lingering COVID-induced supply chain
disruptions. Thus, plentiful domestic and international companies experience huge operation cost
pressures such as skyrocketing input prices, rising transportation costs, or employment fees
burden, which will squeeze their earnings and profits. Hence, many must downsize production to
survive or even go bankrupt (Hatmanu & Cautisanu 2021). This hardest hit psychological shocks
to investors which reduces their confidence in holding stocks (equity) and reinforces them to sell
more stocks rather than buy to preserve their principal and previous gains before they lose more.
According to the Law of Supply and Demand theory, if more investors desire to sell more stocks
than buy them (S>D), the stock prices will fall. Consequently, higher inflation rates worsen stock
market presentation.

However, in fact, stock markets engaging in different sectors/industries perform
differently under COVID-19 impacts. Several industries like food, pharmaceutical, healthcare,
and high-tech showed impressively positive returns (Alfaro et al 2020). Their stock prices fell
initially but a little due to global impacts. But those industries can rapidly rebound and achieve
potential returns since their items’ demand can grow fast in epidemic because of their necessity
to recover human life during serious pandemics. Hence, their sales numbers are enriched,
reaching larger revenues to compensate for higher manufacturing-costs pressure. As a result,
their stock prices recover and tend to rise back, inducing relevant sectors’ stock markets to be
attractive again.

The inflation rate in Vietnam was 3.22% in 2020, a 0.43% increase from 2019 but is
considered increasing at moderate level. Also, Vietnamese stock market firstly experience
deterioration and falling stock prices due to common inflationary influences, compared to some
top impacted by climbing inflation such as U.S (4.7%), India (6%), and U.K (6.2%) (WorldBank
2020)

b. Interest rate

7

Alam and Uddin (2009) recorded an inverse correlation between interest rate and
stock prices, as interest rates move higher, stock prices move lower, and vice versa. In detail,
when interest rates rise, both businesses and consumers (borrowers) tend to reduce their
expenditures because they must pay more loan (debts) costs. Product and services productions
are downsized, higher cost payments which make both businesses lose potential profits at a
different level. Subsequently, the loss of profits of companies is likely to bewilder investors who
are holding their stocks. This tendency instigates investors to sell off their stock more, causing a
stock market surplus (S>D) that pushes the price down, combining tightened capital flows into
stock markets leading to stock market getting worse. The opposite case holds for when interest
rates are lowered.

Since Covid-19 pandemic caused Vietnam’s economic stagnation and many
businesses’ dooms, the State-Bank-of-Vietnam (SBV) decide to tighten the monetary policy as
facilitating money supply and cutting interest rate benchmark from 5-6% to 3.4-4% attempt to
support economic recovery (Vietnamese-Ministry-of-Finance-2020). Lowering interest rates can
stimulate more operators and their investment that may pull back some industrial stock prices
with the hope to better the entire stock market further.

c. Exchange rate

Depreciation is the loss in value of a country’s currency against other foreign
currencies. Studies that have investigated the impact of domestic currency depreciation on the
stock market have negatively affected the prices of the stock market (Soenen & Hannigar 1988;
Phylaktis & Ravazzolo 2005). Prices of stock exchanged in an economy would decline following
a devaluation in the local currency. One reason is that the currency depreciation would yield a
lower worth of dividend payments for investors who hold domestic stocks in that economy.
Moreover, the devaluation can flag low growth potentialities for portfolio administrators who

embrace stocks in the domestic economy (Rehan et al 2019). Thus, individuals will ultimately
move their cash to purchase foreign stocks where they are able to significantly acquire more
profits, rather than continuously place funds in the domestically risky market. The opposite case
holds for currency appreciation.

d. Investor sentiment

8

Investors' sentiment or confidence can manipulate the stock market performance
which can push-up or pull-down stock prices (Baker & Wurgler 2007). If stock prices keep
rising, investors are said to be ‘bullish’, having positive sentiment for stock speculation. But if
price falls are predicted, sentiment is ‘bearish’, which means investors have negative attitudes
regarding stock market performance, encouraging them to start selling stock to minimize loss.

After the lockdown until now, a good signal for the Vietnamese stock market to
recover appears when the Vietnamese stock market receives positive stock confidence returns
from both domestic and international investors. Their strong confidence and trust in Vietnam
government's reactions to combat the pandemic successfully for favorable stock prices have
pushed up Vietnamese stock prices again, expecting a rebounded stock market (Dao & Gan
2021).
IV. CONCLUSION

Conclusively, the impacts of the coronavirus pandemic on both world economy and
overall equity market are adversely serious since new confirmed cases and deaths are
continuously increasing daily, and Vietnam is no exception. Nearly all stock market indexes
plummeted dramatically, and stock prices fell which limited potential yields of investors and
deteriorated stock market performance. Furthermore, with high inflation rate, interest rate, and
exchange rate variation, investors’ reactions contributed to explaining the negative effects caused
by this outbreak. However, thanks to the right and wise policies, timely actions of Vietnamese

Governments, and investors’ trusts, the equity market has gradually been prospectively attractive
again.

V. REFERENCES

Adekoya, A.F and Nti, I.K 2020, ‘The COVID-19 Outbreak and Effects on Major Stock Market
Indices across the Globe: A Machine Learning Approach.’, Indian Journal of Science and
Technology, vol.13, no.35, pp.3695–3706.

Alam, M.M and Uddin, G 2009, ‘Relationship between Interest Rate and Stock Price: Empirical
Evidence from Developed and Developing Countries’, International Journal of Business and
Management, vol.4, no.3, pp.43-51.

9

Al-Awadhi, A.M., Al-Saifi, K, Al-Awadhi, A and Alhamadi, S 2020, ‘Death and contagious
infectious diseases: impact of the COVID-19 virus on stock market returns’, Journal of
Behavioral and Experimental Finance, vol.27, p.100326.

Alfaro, L, Chari, A, Greenland, A.N and Schott, P.K 2020, ‘Aggregate and Firm-Level Stock
Returns during Pandemics, in Real Time’, Working Paper, National Bureau of Economic
Research< />Baker, M and Wurgler, J 2007, ‘Investor Sentiment in the Stock Market’, Journal of Economic
Perspectives, vol.21, no.2, pp.129–151.

Bofinger et al 2020, "Economic implications of the COVID-19 crisis for Germany and economic
policy measures", National Center for Biotechnology Information, vol.100, no.4, pp.259-265

Chen et al 2009, ‘The positive and negative impacts of the SARS outbreak: a case of the Taiwan
industries’, The Journal of Developing Areas, vol.43, no.1, pp.281-293

Dao, L.T.A & Gan, C 2021, ‘The impact of the COVID-19 lockdown on stock market
performance: evidence from Vietnam’, Journal of Economic Studies, vol.48, no.4, pp.836-851.

Fernandes N 2020, Economic Effects of Corononavirus Outbreak (COVID-19) on the World
Economy, IESE Business School Working Paper, SSRN, viewed 16 May
2022,< />
Giang, N.K. and Yap, L 2020, Vietnam is Asia’s best equity market performer in may,
Bloomberg, viewed 13 May 2022< />asia-s-best-stock-rally-in-may-vietnam-markets-primer>

Hatmanu, M & Cristina Cautisanu, C 2021, ‘The Impact of COVID-19 Pandemic on Stock
Market: Evidence from Romania’, International Journal of Environmental Research and Public
Health, vol.18, p.9315

He, Q, Liu, J, Wang, S and Yu, J 2020, “The impact of COVID-19 on stock markets”, Economic
and Political Studies, vol. 8 no.3, pp.1-14.

10

Kartal, M.T, Depren S.K, Depren Ö 2021, ‘How Main Stock Exchange Indices React to Covid-
19 Pandemic: Daily Evidence from East Asian Countries’.

Liu, H, Manzoor, A, Wang, C, Zhang, L and Manzoor, Z 2020, ‘The COVID-19 outbreak and
affected countries stock markets response’, International Journal of Environmental Research
and Public Health, vol.17, no. 8, p. 2800.

Ozili, P.K, Arun, T 2020, Spillover of COVID-19: Impact on the global economy, SSRN,
viewed 17 May 2020, < />
Phylaktis, K & Ravazzolo, F 2005, ‘Stock price and Exchange rate dynamics’, Journal of
International Money and Finance, vol.24, no.7, pp.1031-1053.

Rehan et al 2019, ‘The relationship between exchange rate and stock prices in South Asian
Countries’, International Journal of Innovation, Creativity and Change, vol.6, no.9.

Schoenfeld, J 2020, The Invisible Risk: Pandemics and the Financial Markets, Tuck School of
Business Working Paper, SSRN, viewed 18 May 2022,< />abstract_id=3567249>

Soenen, L.A and Hannigar, E.S 1988, An analysis of Exchange rate and Stock Prices: The US
experience between 1980 and 1986, Akron Business and Economic Review, Winter, p.7-16.

Vietnamese Ministry of Finance 2020, Central Bank cuts interest rate to buffer COVID-19
impact, Vietnamese Ministry of Finance, viewed 19 May
2022,< />dDocName=MOFUCM174279&fbclid=IwAR2hbncDYWsDr4tkEbdkK836yXzLHiEpsNrg5nx
Ahoasq6jNWFoes11vREQ>

WHO 2020, Director-general’s opening remarks at the media briefing on COVID-19-11 2020?,
WHO, viewed 10 May 2022,< />director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020>

11

World Bank 2020, Inflation, consumer prices (annual %)-Vietnam, World Bank, viewed 10 May
2022, < />
Wyplosz, C 2020, So far, so good: And now don’t be afraid of moral hazard, VoxEU.org, viewed
15 May 2022,< />
PART B: INDUSTRY TALK

We have an Industry talk section with Mr. Minh-Tri Doan, presenting mainly about
the value chain in the financial market. The value chain in the financial market is familiar with
where people create products and services and then deliver them to the end-users (consumers) in
terms of value chain operation in financial sectors. Particularly, more concerning the financial
market from both angles. The supply side included financial institutions and corporations, while

the demand side consisted of consumers (individuals). All products and services, as well as value
chain operations, have to be raised by market needs.

Next, he discusses the concept of financial literacy with a model “Earn-Spend-
Borrow-Protect-Invest”. It’s extremely important for me to manage my future cash flow
effectively. I can infer some key instructions in this process as firstly, people earn money and
manage money effectively, either from two ways of professional career or entrepreneur. The
guest speaker said that we need to optimize our spending and control it. Secondly, if cash
availability is insufficient to finance or spend, we can borrow to maintain our expenditure and
our operation. Then when our cash flow is stable, we have enough cash that we need to protect
them from unpredictable events and life risks. Usually, people pay for life insurance, medical
insurance, or casualty insurance to protect themselves. Finally, if we have more surplus cash
sources, we can invest in other financial assets or other potential sectors to expect more
prospective returns. Through his explanation, I can conclude that the key to financial literacy is
to understand and manage the cash flow efficiently and how we can serve our purpose in each
financial literacy component.

According to the guest speaker, most people tend to pay more attention to investment.
He mentions some financial markets at first as capital markets, money markets, derivative
markets, or bond markets and I see those are the hugest financial markets for securities trading

12

and investment, which we have covered in this course. He declares Fintech and Blockchain can
help investors become smarter. This topic is quite new and interesting. Fintech and Blockchain
change the investors’ behaviors when they start their investment journey. In-depth, Fintech is
disrupting the journey of investors. Fintech can change the face of the Equity market, which is
one of the primary financial markets, we learned in this course. It’s apparent that the equity
market (stock market) is a place where stocks and shares of companies are issued and traded
which appeals to lots of domestic and international investors engaging in trading sessions for

expected profit earnings. A few fintech organizations offer services to investors comprising AI,
online payment applications, and the based platform that manages the exchange-traded funds
(ETFs) portfolio, as indicated by the investors’ objectives. Fintech delivers live statistics on the
latest trends, organization data, public sentiments, and more. This helps investors have strategic
investment portfolios and make informed decisions. Blockchain also is included as a kind of
Fintech that places positive influences on facilitating investors’ trading.

13