Interest rates drop rapidly, will money flow to stocks?

A disappointing week: Vingroup , HPG, and bank stocks decline

The stock market ended the week quite disappointingly with falling scores and liquidity remaining low despite investors receiving a lot of positive information. During the week, the State Bank of Vietnam (SBV) reduced interest rates for the third consecutive time. Authorities continued to have additional policies to support the economy .

In this third reduction, the SBV lowered the refinancing interest rate from 5.5% to 5%/year. The overnight interest rate in interbank electronic payments and loans to cover capital shortages in SBV's clearing payments for credit institutions decreased from 6%/year to 5.5%/year. The ceiling interest rate on deposits with terms of 1 month to less than 6 months decreased from 5.5% to 5%/year...

Despite information that the State Bank of Vietnam will reduce interest rates, the VN-Index decreased slightly during the week of May 22-26.

On the afternoon of May 24, the State Bank of Vietnam also announced information requesting credit institutions (CIs) to urgently issue and immediately implement internal regulations on restructuring debt repayment terms and maintaining debt groups according to the provisions of Circular 02/2023/TT-NHNN.

According to Circular 02, credit institutions evaluate loans to organizations/individuals who are unable to repay principal/interest due to revenue and income decline compared to the loan plan and extend the term by 12 months from the old due date. Credit institutions do not have to adjust the classification into a higher risk debt group. The Circular is effective until June 30, 2024.

The State Bank also requires credit institutions to continue to cut costs to reduce lending interest rates and fees to support businesses and people to recover and develop production and business. Promote a credit package of VND 120,000 billion for investors and home buyers of social housing projects, worker housing, and projects to renovate and rebuild old apartments according to Resolution 33/NQ-CP dated March 11, 2023 of the Government ...

At the end of the week, the VN-Index decreased by 0.3% to 1,063.8 points. The Upcom-Index decreased by 0.6% last week to 80.6 points. Meanwhile, the HNX-Index increased by 1.8% to 217.4 points.

*Cash flow is expected to soon flow into the stock market as interest rates fall and corporate profits rise again. (Photo: HH)*

Liquidity decreased slightly with the average trading value on the three floors decreasing by 2.3% compared to last week, to VND 14,552 billion/session.

Blue-chip stocks negatively impacted the market. Many stocks fell sharply, such as: Vingroup VIC (down 1%), Hoa Phat (down 3.2%), Vinamilk (down 2.2%), PV GAS (down 1.3%).

Banking stocks also contributed to the general market decline. Vietcombank (VCB) shares fell 2.3% during the week; BIDV (BID) fell 2.2%; VPBank (VPB) fell 0.8%; Vietinbank (CTG) fell 0.7%...

Another notable development is the strong selling decision of foreign investors.

During the week, foreign investors net sold VND2,371 billion on the Ho Chi Minh City Stock Exchange (HOSE), in contrast to the net buying of VND785 billion last week. On the Hanoi Stock Exchange, foreign investors net bought VND36 billion and net sold VND31 billion on the UPCOM.

Electricity stocks surged after the official announcement of the VIII Power Plan. During the week, PGV shares rose 9.6%; REE Refrigeration Electrical Engineering rose 4.8%; Nhon Trach 2 (NT2) rose 3.6%; and Bamboo Capital (BCG) rose 7%.

Public investment stocks also performed positively, such as: CII (+15.0%), HHV (+8.7%) and VCG (+6.4%) thanks to the Government's strong commitments on public investment disbursement.

While foreign investors and institutions sold, individual investors increased their buying in May, which lacked information about businesses but had a lot of information related to solutions to support businesses and the economy.

Long-term positive expectations

Assessing the move to lower the operating interest rate by the State Bank, Mr. Huynh Minh Tuan, founder of FIDT JSC, said that the decision of the State Bank, contrary to developments in the world financial market, will be positive in the long term.

However, Mr. Tuan also expects the policy to be synchronized with increasing the economy's capital absorption capacity and opening credit conditions, combined with the State Bank continuing to buy USD, increasing the supply of VND to the market 1.

Mr. Dinh Quang Hinh, Head of Macro and Market Strategy Department of VNDirect Securities believes that smart money will come to the stock market in the near future.

According to Mr. Hinh, investors should not be disappointed by the negative developments in the week of May 22-26. Accordingly, the impact of monetary policy often has a delay.

In the medium and long term, the cooling of interest rates will have a positive impact on the stock market. Lower interest rates help reduce the opportunity cost of investing in stocks, while also reducing the financial costs of businesses, thereby improving market earnings.

Accordingly, the more positive trend of interest rates and market income will create momentum for the stock market. Therefore, although the interest rate reduction has not had an immediate positive impact on market developments, investors need to see this as an opportunity to accumulate stocks at attractive prices to "anticipate" the market recovery period in the coming time.

Some industries may have superior strength compared to the general level such as banking, securities, public investment (infrastructure construction, construction materials) and energy (electricity, oil and gas).

Investors are also concerned about global market turmoil and recession in some regions.

Europe's largest economy - Germany - officially fell into recession last week with 2 consecutive quarters of negative growth. The German economy was heavily affected by the energy shock (after the Russia-Ukraine conflict) and the financial storm as well as changes in the automobile industry.

The United States has also been repeatedly warned that it could fall into recession as consumer demand falls, interest rates remain high and the banking system falls into crisis. The US government is now facing the possibility of running out of money if it does not get approval to raise the debt ceiling.

The decline in consumption in many major economies is assessed to be likely to affect the export activities of many Vietnamese enterprises.

Meanwhile, efforts to loosen monetary policy to support Vietnam's economy and the recent decline of the VND may make foreign capital cautious when pouring into the stock market.

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