Cash flow into the stock market keeps rising despite Fed’s interest rate increase

22-Dec-2016 Intellasia | Dau Tu Chung Khoan | 1:59 PM Print This Post

The stock market’s adjustment over the past more than one month caused many investors to attribute the reason to the net selling of foreigners to transfer capital to the United States. Interestingly, many leaders of large brokers said that the money flow into stock is still rising while VN Index’s decrease is due to a variety of other reasons.

*The impact is not too large

During the December 2016′s regular meeting, the US Federal Reserve (Fed) decided to raise interest rates by 0.25 percent, while giving signals about the three interest rate hikes in 2017. This news caused the US dollar to rise, putting pressure on the majority of the currencies on the market, including dong.

That the US dollar appreciation trend is forecasted by many experts to continue in the future, combined with seasonal factor i.e. the end of the year, have caused concerns about the devaluation of the local currency.

Commenting on the recent exchange rate fluctuations,  Johan Nyvene, CEO of HCM City Securities Corporation (HSC) said that Vietnam’s stock market is a marginal market which has specific characteristics and has had no impact on the cash flow of foreign investors.

However, on the one hand, exchange rate developments in recent time will increase the pressure on other currencies including dong, making it to devalue against the US dollar. On the other hand, it creates pressure on raising interest rates in dong.

However, with the flexible management of the central rate by the State Bank, the US dollar/dong exchange rate will be adjusted at appropriate level, and this will help foreign investors continue believing in Vietnam’s stock market.

In particular, based on many macroeconomic factors and the quality of goods on the bourse,  Johan said that the opportunity for Vietnam’s stock market in 2017 is very large.

Not to mention, the determination of the government in promoting transparency, improving the investment environment and divesting capital from many large businesses will create motivation, create new sources of supply in the market and increase choices for investors.

“If we are determined to upgrade Vietnam stock market to emerging market, this factor will increase the attractiveness for investors to pour capital into Vietnam”, said Johan.

Vu Duc Tien, CEO of Saigon – Hanoi Securities Company (SHS) also said that although exchange rate has had quite dizzy fluctuations, the flexible management of exchange rate by the State Bank helped the domestic supply – demand of foreign currency to be quite balanced. Exchange rate fluctuations have affected the capital flow in the stock market but the influence is not significant.

The issue of concern now is how to attract foreign capital flows into the market through specific policies because foreign capital flows will remain the key factor to promote the development of the securities market. Besides, that a series of “huge” shares are about to be listed on the bourse can cause imbalance between stocks and cash flow, making the market to have increasingly clear divergence.

Despite the assessment that the cash flow on the stock market will not be significantly affected, experts still recommend investors to closely monitor the exchange rate factor, especially when exchange rate risks associated with risk system stemmed from unexpected developments in the world market over the last period.

Besides, investors should keep an eye on the sectors that have huge loans in foreign currency such as thermal power, cement, shipping, etc. as this business sector will bear the greatest influence when dong is devalued. Together, the group of sectors having to import input materials such as pharmaceuticals, plastics, steel, tires, etc. will be more or less affected, depending on the proportion of raw material import of each business.

*Interest rates continue having upward trend

Exchange rate and interest rate always have close relationship. As per actual observations, the global and domestic stock market does not have too many changes before and after the Fed’s meeting. This shows that investors have received information about Fed’s interest rate increase with calm and are not so worried because this move had been forecasted.

Bao Viet Securities Company (BVSC) said that, following Fed’s decision on interest rate increase, Dow Jones index continued to set record highs and is reaching the milestone of 20,000 points, while the VN Index almost had no significant impact. Even, investors seem to be relieved from a permanent concern throughout this year and when the big concern has gone over, investors will be more comfortable to come back to the market.

As exchange rate changes, the pressure on interest rate adjustment is inevitable. Though Fed’s roadmap to raise interest rate was anticipated, in the long run, this scenario will continue to have a significant impact on Vietnam stock market.

First was the impact on the shift of cash flow from marginal market to developed ones. This has been verified through observing the activities of foreign investors after Fed raised interest rates for the first time in late 2015.

Tracking major changes in the currency market over the past two weeks, MB Securities Company (MBS) said, inter-bank interest rates continued upward trend compared to the previous two weeks and deposit rates will increase slightly, especially in short terms thanks to strong credit demand in the last months of the year.

Notably, the stock market’s adjustment over the past more than one month caused many investors to attribute the reason to the net selling of foreigners to transfer capital to the United States where interest rates are rising. However, this assessment is unfounded. There are several reasons for the market to adjust including many investors’ take-profit activities, large investors and proprietary trading group’s category conversion after a long uptrend cycle since the beginning of 2016.


Category: Stocks, Vietnam

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