Will rate hikes cause many assets to reverse their upward trend?

This is particularly comprehensible given that the stock and real estate markets have had robust development as a result of extended low interest rates and quick credit growth. Does it matter if the prospects for these assets will be reversed by the rise in deposit rates?

Look at interest rates in the right way

According to financial analyst Huynh Hoang Phuong, interest rates in financial investments should be tracked along two key axes and should constantly be assessed along both.

The trajectory of interest rates is represented by the first axis; are they rising, falling, or going sideways? How quickly or slowly do they change? While a slight increase from a low base might indicate something quite different, a significant increase often indicates tightening.

The level of interest rates is the second axis; where are they? Is it high, neutral, or low?

A historical comparison reveals that the stock market, an interest-rate-sensitive asset class, is in a distinct state during each era of interest rates. As a result, a significant drop in interest rates will result in plenty of liquidity and a robust stock market rise. The stock market will move sideways and in strong distinction if interest rates rise gradually from a low foundation. The stock and real estate markets will face significant dangers if interest rates rise quickly.

"A more nuanced understanding is required rather than just looking at the figures because interest rates are moving in an upward trend in the current context, but from a very low base," stated Phuong.

Interest rates rise but not monetary tightenning

It is clear that certain banks began raising deposit rates for specific periods in August and September. By October and November, this rise had extended more extensively across the banking system for the majority of terms. Even for smaller savings, interest rates on several common deposits have recently risen to 6% annually.

The aforementioned reality results from loan growth exceeding deposit growth, which forces many banks to depend more on the interbank market, which is subject to stricter regulation because maintaining exchange rates is a top goal.

The fact that private commercial banks, particularly large ones, have increased deposit rates far more quickly than state-owned banks (SOBs) is a noteworthy trend. Based on past history, the SOBs will probably need to raise deposit rates in order to maintain the deposit flow because the difference in deposit rates between the two groups has grown to such an extent.

This suggests that interest rates will remain under control even if they continue to rise modestly in the near future. Phuong underlined that there is now little chance of interest rates rising quickly and dramatically to levels that would constrict the economy, both in terms of likelihood and amplitude.

As the Fed will begin to foster a cycle of rate cuts in 2026, pressure from around the world is progressively lessening. Although there are no major problems associated with Vietnam's inflation, the government nevertheless needs to encourage investment and consumption. Overall, Phuong believes that interest rates will probably rise gradually and stay in a somewhat neutral or supportive range, just like they did between 2015 and 2017.

Impact on asset classes

The impact on asset prospects would differ in real terms in the most likely scenario, in which interest rates rise gradually and stay in a moderate to near-neutral zone.

Phuong said cheap money would make it hard to enter the stock market as a result of the rate hike. The investors’ focus will shift back to the core characteristics of the listed companies as short-term speculative cash flow eventually decreases. Instead of swing trading, now is a good time to invest in stocks for the medium and long term. Investment funds can improve their capacity to provide more earnings when the fundamentals rebound in the near future.

As capital costs rise, real estate market sectors that depend on low-cost loans or speculative cash flow will be more vulnerable. Conversely, genuine demand, real value, and sustainable cash flow sectors will continue to track the chances for economic recovery and maintain a strong place in investment portfolios, according to Phuong.

When deposit rates have increased from their lowest point in almost ten years, the deposit channel has recovered its relative appeal. When deposit interest rates are insufficient to offset the fear of currency depreciation, this helps lessen the incentive to hoard USD or the rush to seek safety in gold. To have a more noticeable effect, however, the level of influence requires more time and a little increase in tempo.

As predicted by Phuong, speculative operations will progressively have lower projected returns in relation to the risks involved, whereas value investments would generally continue to follow the economic cycle. Investors should prefer value- and sustainability-based methods over swing trading at this time.

The aforementioned study gives investors a more thorough understanding of how rising deposit rates affect different asset classes. Every historical epoch has unique characteristics, and history never repeats itself. In order to make wise investing selections, investors must keep an eye on a number of variables.