Great opportunities from upgrading Vietnam's stock market and the influence of the FED

The expectation of upgrading the stock market and the US Federal Reserve's (FED) interest rate cut roadmap are opening the door to attracting new capital flows, reducing net selling pressure from foreign investors and creating more "thickness" for liquidity. This is the prominent message at the talk show "Upgrading stocks: New step, great opportunity" organized by Nguoi Lao Dong Newspaper on September 18, in the context that the FED has just lowered interest rates by 0.25 percentage points and the domestic market is facing a series of important policies.

Stocks remain positive

In the trading session on September 18, VN-Index fluctuated and slightly decreased to 1,665 points, reflecting cautious sentiment after the correction from the peak of 1,700 points in early September.

However, most experts and securities companies still maintain a positive view as the FED enters the interest rate easing cycle. Along with the 0.25% reduction, analysts bet on two more interest rate cuts by the FED from now until the end of the year. A downward interest rate slope often makes the cost of capital cheaper, improves valuations and helps cash flow accept risks better. In that context, the VN-Index retreating to around 1,660 - 1,670 points is considered a necessary "gain of momentum".

Speaking online from Hanoi, economic expert, Dr. Nguyen Tri Hieu emphasized that the signal from the FED has a favorable two-way impact. According to him, with this adjustment and the expectation of further reduction, the US base interest rate could fall to 4% - 4.25%.

"With this development, US interest rates will be lower than VND interest rates in Vietnam, thereby reducing foreign net selling in the stock market," Mr. Hieu said. He noted that the USD index (DXY) has dropped to 96 - 97 points, helping to reduce pressure on the USD/VND exchange rate. A stable exchange rate is a prerequisite for foreign capital to consider returning, while domestic investors are confident with medium- and long-term disbursement plans.

Mr. Phan Dung Khanh, Investment Consulting Director of Maybank Securities Company, said that the FED's interest rate cut has been partly reflected in the price, so the VN-Index did not fluctuate strongly on September 18. "The positive outlook will react more in the medium and long term" - he commented, at the same time saying that investors need to pay close attention to the third quarter reporting season and the 2025 plan to quantify the "health" of businesses.

According to Mr. Khanh, unlike the US market structure - where technology accounts for a large proportion, the Vietnamese stock market is mainly led by the finance - banking, securities and real estate groups. If the recovery trend is maintained, these "backbone" groups will continue to play a driving role.

Mr. Nguyen The Minh, Director of Retail Client Analysis - Yuanta Vietnam Securities Company, added that in addition to interest rates and market upgrades, the current trading week is also affected by technical factors from derivatives maturity and the structural developments of ETF funds.

"The longer-term story is that when US interest rates decrease, businesses' capital costs will decrease, thereby improving the P/E valuation of the Vietnamese stock market, making it more attractive than it is now," Mr. Minh assessed. Due to the impact of tariff policies, the export group may not be as prosperous as expected. On the contrary, the retail, electricity - hydropower, finance - banking and securities groups are on a more positive foundation in the third quarter.

In the real estate group, experts agree on the trend of differentiation. Third quarter profits of many businesses have not yet broken out, but the revenue prospects for the next 12-18 months are assessed to be brighter when the legal process is gradually smoothed and credit goes to the right address.

Mr. Nguyen The Minh predicted that the securities group will directly benefit if the upgrade goes according to schedule. The banking group can improve its profit margin thanks to the increase in demand deposits (CASA) in the third quarter; while the construction - public investment group continues to have its "own story" when the Government promotes disbursement.

Cơ hội lớn từ nâng hạng thị trường chứng khoán Việt Nam và ảnh hưởng của FED - Ảnh 3. — Talkshow “Upgrading securities: New step, great opportunity” organized by Nguoi Lao Dong Newspaper on September 18. Photo: QUANG LIEM

Need more long-term solutions

The policy highlight mentioned a lot in the talk show is the expectation of upgrading the stock market from frontier to emerging according to FTSE Russell's criteria.

A few days ago, Minister of Finance Nguyen Van Thang and his delegation worked with the London Stock Exchange - UK to discuss technical requirements and a roadmap to meet the criteria. The Government also approved the Project to Upgrade the Vietnamese Stock Market, setting a short-term goal of "fully meeting the criteria for upgrading from a frontier market to a secondary emerging market of FTSE Russell in 2025". This is an important reference framework for the management agency, the exchange and market members to sprint together.

From a cash flow perspective, Dr. Nguyen Tri Hieu assessed that the impact of upgrading the stock market is not only psychological. When the Vietnamese stock market is upgraded, foreign investors will feel less risky. Some initial estimates show that foreign capital inflows could be from 5 to 10 billion USD in the first year and the total scale could gradually increase to 40 billion USD if the market continues to improve some criteria. "Upgrading is the first step, the important thing is that the market must maintain its attractiveness and comply with international standards for sustainable development," Dr. Hieu emphasized.

The upgrade is not new, but this time, the stock market has more basis when the expected time is October 7. Mr. Phan Dung Khanh said that the stock market is watching whether Vietnam will be officially upgraded or not, because at that time, passive cash flow from funds tracking emerging indexes will react more clearly.

"Market liquidity has increased very high this year, reflecting investors' high expectations. In the medium and long term, in addition to upgrading, securities will also benefit from the Government's determination to achieve GDP growth of at least 8% and policies to support the private economic sector and technological innovation," Mr. Khanh believes.

From the experience of the newly upgraded markets, Mr. Nguyen The Minh noted that the effect usually occurs in two rhythms: short-term increase due to expectations and passive capital flow, then return to the orbit of movement due to internal forces. Upgrading is only a short-term factor, while in the long term, more solutions are still needed.

"One of the "sadnesses" of Vietnam's stock market is the continuous net selling trend of foreign investors in recent times, despite the VN-Index going from 1,400 points to 1,700 points in just a few months. Therefore, if the stock market is upgraded, we need policies to increase the proportion of foreign investors, because only institutional investors tend to hold for the long term - promoting the sustainable development of the stock market, becoming a sustainable capital mobilization channel" - Mr. Nguyen The Minh is optimistic.

One of the factors that will help make Vietnamese stocks attractive again and possibly attract foreign capital inflows is the upcoming "wave" of initial public offerings (IPOs) of a series of businesses.

The regulatory authority has just revised the regulations, making it easier for businesses to list on the stock exchange, helping to increase the number of goods. Quality businesses listed on the stock exchange will attract capital flows from foreign investors again.