Cash shifts to stock market amid lower interest rates

A customer makes a transaction at Vietcombank's branch in Hà Nội. With the recent growth and recovery of the market plus low deposit interest rates, inactive cash will likely shift to the stock market from now until the end of the year. Photo Vietcombank

HÀ NỘI — Inactive cash showed signs of shifting to securities as banks continue to reduce deposit interest rates to below 8 per cent per year, expanding the liquidity of the stock market.

From the beginning of July until now, more than 20 banks have reduced deposit interest rates.

Many banks have reduced rates twice, such as SeABank, Maritime Bank, and NamABank.

The most common reduction is 0.2 per cent, while some have made sharp decreases from 0.5 to 0.8 per cent per year, including Saigon-Hanoi Bank, BacABank, Ocean Bank, NamABank, Tiên Phong Bank and SeABank.

Liquidity boom

According to Trần Trương Mạnh Hiếu, Head of the Analysis Department of KIS Vietnam Securities Company, the State Bank of Việt Nam may lower the operating interest rate again. However, this will depend heavily on exchange rate fluctuations.

The US Federal Reserve (Fed) mid this week announced it will raise rates by another 25 basis points to 5.25 per cent to 5.5 per cent, the highest level since the beginning of 2001 and the 11th hike by the Fed since March 2022.

“This also means that the exchange rate may increase slightly, so the State Bank may still be waiting for the next move of foreign capital inflows. If this cash flow does not leave the Vietnamese market after the Fed's interest rate hike, the SBV may make another rate cut," said Hiếu.

According to ACB Securities Company (ACBS), with the recent growth and recovery of the market plus low deposit interest rates, inactive cash will shift to the stock market from now until the end of the year.

By the first quarter of 2023, the highest margin interest rates of the top 20 securities companies with the highest outstanding loans decreased from 14 to 15.6 per cent to 8 to 9 per cent.

Deposit interest rates continued to decrease, causing liquidity to edge up, reaching an average of more than VNĐ15 trillion per session in June 2023.

ACBS said the SBV was determined to bring cash flow out of the safe-haven channel of savings, which would be an opportunity for investors to buy in.

Experts recommended that investors should hold leading stocks with stable business results. When the market recovers, sectors of securities, public investment, construction and building materials would bring profits.

Bùi Nguyên Khoa, Head of Market Analysis, at BIDV Securities Company (BSC), said that the cash flow was moving quickly across industries and focusing on small and medium stocks, helping this group increase sharply.

However, according to Khoa, although trading was active in some groups, the whole market has yet to make a breakthrough.

Due to a lack of positive factors, a lot of cash is still in deposit and savings accounts. Trading volume has increased but transaction value hasn't significantly improved.

“After interest rate cuts, it usually takes 3 to 6 months to fully reflect the market's movements. Therefore, an accumulation phase is needed for the market to establish the trend and grow liquidity in the future", Khoa added.

According to Khoa, investors can watch to buy at short-term corrections to seek profit from an uptrend along with the interest rate lowering cycle.

Interest rates falling

The Big4 group - including Agribank, BIDV, Vietcombank and VietinBank - has also lowered rates in most deposit terms.

BIDV decreased by 0.1 per cent for 1-month and 2-month deposit terms, down to 3.3 per cent per year. However, the bank still kept the deposit interest rate for the remaining terms, the highest being 6.3 per cent per year for terms of 12 months or more.

Similarly, Vietcombank has just adjusted interest rates at the counter, down 0.1 per cent for 1-month and 2-month terms to 3.3 per cent per year. For online savings, Vietcombank adjusted the 1-month term interest rate from 3.6 per cent per year to 3.4 per cent. Interest rates for 3-month terms were reduced by 0.1 per cent to 4.2 per cent, and for 6-month and 9-month terms by 0.1 per cent to 5.1 per cent.

At Agribank, the deposit interest rates for 13- and 24-month term deposits decreased from 6.3 per cent per year to 6 per cent. In addition, the bank also reduced rates for 1-month and 2-month terms from 3.4 per cent to 3.3 per cent per year. The 12-month term interest rate is kept unchanged at 6.3 per cent per year.

VietinBank also made a similar adjustment, the bank reduced the interest rate for 1-month and 2-month terms at the counter from 3.4 per cent to 3.3 per cent per year. Meanwhile, the interest rates deposited at the counter for the term of 3 - 6 - 12 months remained the same, respectively 4.1 per cent - 5 per cent - 6.3 per cent per year.