Stock investors remain wary

Big reduction in interest rates 

Given the global environment of central banks tightening monetary policy and hiking interest rates, Vietnam's interest rates are now at historically low levels. Furthermore, the 10-year government bond yield in Vietnam is 2.753%, whereas it is above 4.2% in the United States.

This means that both government bonds and market real interest rates have fallen dramatically and are now at low levels. While deposit interest rates remain low, lending rates remain quite high, according to some observers. According to polls, many firms report borrowing from banks at an average annual interest rate of roughly 8-9%, with some well-performing enterprises borrowing at 7.5%.

The interest rate drop is not consistent across all banks, and each institution is cautious with its consumers, but the general trend is considerable. Six months ago, the average annual interest rate on house loans was approximately 14%, but it has already dropped dramatically to roughly 9-12%.

Notably, beginning September 1, new bank loan laws allow clients to utilize one bank's loan to repay another, which is thought to require complex processes and is difficult for borrowers. The main point is that it has a significant beneficial impact when banks lending to current customers must reassess the borrower's ability. If the borrower has sufficient capacity, the bank may cut the interest rate on the loan in order to discourage consumers from shifting their loans. As a result, interest rates are projected to fall further in the following months.

All of this suggests that money is now cheap, and that the cheap money climate is projected to persist in the foreseeable future.

Credit and money supply remain low

Looking at the M2 money supply, it is 3.71% as of June 2023, showing a low money supply. Over the last ten years, the money supply has grown at a rate of 12-14% a year on average, closely mirroring credit growth. Meanwhile, credit growth was just 4.73% in the first six months of the year, which is relatively low when compared to the 9.4% recorded in the first six months of 2022.

As a result, money is circulating throughout the economy, but not vigorously, and there isn't a lot of money coming into the stock market. The reason for this is because cheap money has only just been available in the last 2-3 months, and it will not fully infiltrate the market until September-October or November 2023. More money will be flowing into the stock market by that time, beginning in the fourth quarter of this year and continuing into early 2024.

The rationale for this projection is that the Purchasing Managers' Index (PMI) has begun to improve, hitting 50.5 points in August 2023 after a protracted period of pessimism below 50 points. This demonstrates confidence in the expansion of production and commercial operations, and business actions have grown. Credit growth is projected to pick up speed beginning in September.

Furthermore, investment activity in the first eight months of the year grew by 23.1%, and there was a substantial distribution of public investment in July and August. The Deputy Minister of Industry and Trade recently stated that attaining 95% of public investment disbursement this year is totally doable. When government spending expands considerably, it stimulates other economic components, supporting money and credit expansion.

In the first eight months of the year, both exports and imports of products fell dramatically, although the rate of fall has moderated. According to one analyst, Vietnam's trade growth will return to levels observed in the same period last year around October or November 2023 since orders are growing and inventories in the United States and other developed nations have reduced to a low level.

In the late stages of the year, when there is still a surplus of cheap money flowing into the economy, a part of it will go into the stock market. Mr. Phuc predicts that loan growth will be stronger for the four months from September to December 2023 than it was for the first four months.

In the market, there are both opportunities and threats. So, what is the most pressing problem for investors right now? For starters, it has to do with currency rates, as Vietnam's exchange rate has risen by 2.3% in the last eight months. Typically, Vietnam sets an annual aim of a 2% rise in the currency rate.

In isolation, this increase in the exchange rate is negative and tends to depreciate the currency more. However, it should be viewed in a larger context, as the currencies of other nations have also fallen dramatically. The Chinese Yuan, for example, has fallen by more than 4%, while the Japanese Yen has also fallen significantly. This demonstrates that Vietnam has the best control over its currency, making it a stable and appealing location for international investors, who are less inclined to remove their cash from Vietnam.

In terms of GDP growth, many experts believe that this year's GDP will fall short of the 6.5% objective established by the National Assembly. We agree with this assessment because Vietnam's GDP growth in the first six months of the year was quite modest, hovering around 3-4%.

Looking ahead, Mr. Phuc forecasts that GDP growth in the third quarter will be pretty excellent, probably reaching 6%, and that GDP growth in the fourth quarter will be 8-9%, resulting in high GDP growth for the year.

Strong GDP growth has a good influence on all elements. As a consequence, nations considering investing in Vietnam see strong economic momentum and a solid economy, and they will increase their investments. This, in turn, provides economic policymakers with steady momentum and offers firms confidence to expand.

In conclusion, there is a lot of cheap money out there, but it hasn't flooded into the stock market yet. Market values must be considered to see whether there are more possibilities than hazards in the market. P/B and P/E ratios, in general, remain lower than historical averages, indicating that there are still significant prospects.

However, because Vietnam has a relatively open economy, it may be impacted by unanticipated variables such as conflicts, pandemics, and so on. As a result, in order to make sound investment selections, investors must regularly follow monthly macroeconomic indices.