Identifying investment channels in 2H23

Slow Economic Recovery

While the global economy has averted a "hard landing" recession, Vietnam is nevertheless feeling the effects. This highlights the impact of external and internal shortcomings, particularly the vulnerability of Vietnamese firms to high loan rates.

The majority of businesses rely primarily on leverage for growth due to limit ed competitive advantages and low workforce productivity. Credit expansion of roughly 15-20% is required for the economy to reach 7-8% growth. Businesses, on the other hand, find themselves "suffocating" when loan growth slows and interest rates rise.

One macro issue to consider in Vietnam is that if we stimulate demand by lowering interest rates or enacting stronger monetary easing measures while supply remains insufficient, we would see fast price increases across a wide range of commodities, adding to inflation.

Inflation in Vietnam is now relatively low, considerably below the government's objective, but there is still pressure ahead. To prevent hazards, regulatory bodies continue to pay close attention to lowering interest rates or boosting the money supply.

Vietnam has to restore momentum in the industrial sector in order to accelerate and support economic growth. Prior to the Covid-19 period, the industrial sector, which averaged roughly 9-10% growth, was the primary driver of national economic growth. However, by 2023, it will be the leading cause of sluggish economic growth.

Currently, second-quarter industrial sector growth has grown to 2.5%, which is a very optimistic indicator. However, for the economy to return to the government's aim of 6-7% growth, the industrial sector must rebound to a 10% level.

Where to invest?

In the current environment, equities are a moderately profitable investment channel, with a growth rate of 12% based on the VN-Index. Profitability may be considerably higher if investors identify the correct recovery stocks, as some firms have gained by 70-80%.

Savings deposits increased significantly at the end of last year and the beginning of this year, resulting in an average profit of roughly 6% in the first six months. Other channels, such as currency rates, have been largely sluggish since the explosion at the end of 2022, and are presently seeing small negative growth. Global gold prices have showed a favorable trend since the beginning of the year, while Vietnamese gold has remained stable, with just a 0.5% growth rate.

In short, equities represent the investment market's early and strongest recovery channel. So, will they remain appealing in the final six months of the year? Smart money tends to go toward the most lucrative chances.

To begin, the interest rate channel for deposits will continue to fall from now until the end of the year, lowering the "room" by around 1%, since the economy's and enterprises' health can only withstand the present level.

If investors deposit money from now until the end of the year, the 6- to 9-month deposit interest rate will be approximately 6.5%/year.

The gold channel comes next. According to Mr. Bau, this is not an appealing route since gold prices will climb owing to dangers in global politics and the economy. Furthermore, due to legal dangers, Vietnamese gold prices are now static. Investing in gold now can expose you to price volatility if legal rules change.

Besides, consider real estate. Credit and legal laws are critical determinants in this business. Credit growth is currently at its lowest point in ten years. Real estate will continue to encounter challenges if financing does not flow.

Furthermore, due to Vietnam's real estate sector's reliance on credit and the timeline for legal reforms, the legal framework for the real estate market is expected to be formed by October, including the Land Law, Housing Law, Auction Law, and so on, which will take 6 months to a year to fully permeate.

If mobilized funds do not expand, credit growth will be constrained, posing problems for banks in terms of bad debts and ratios.

In addition, the expert offers two viewpoints on the exchange rate channel. First, the trajectory of the USD and the flow of money from overseas into Vietnam continue to support the relative strength of the Vietnamese dong (VND) versus the US dollar.

Second, commercial banks' selling rates are already well below the State Bank of Vietnam's purchasing rate, indicating that the State Bank has begun to restrict money supply through USD purchases. In truth, the exchange rate is not an appealing channel this year.