Which scenario for VN Index when Fed and Vietnamese banks lower interest rate

06-Aug-2019 Intellasia | BizLIVE | 6:02 AM Print This Post

Experts have mixed views after the Federal Reserve System (Fed) and some Vietnamese banks lowered interest rates.

Fed just decided to lower the interest rate by 0.25 percent to the threshold of two percent to 2.25 percent.

At the same time, some Vietnamese banks had similar moves, simultaneously announced the decision to reduce short-term lending interest rates in dong from August 1.

BizLIVE recognised evaluations of some securities company experts about market impacts.

There will be positive cash flow for the market

Huynh Anh Tuan, deputy general director of Everest Securities Joint Stock Company, said that Fed’s interest rate reduction had been anticipated and the US stock market had received this information. Particularly, the Asian stock market had not absorbed much, especially Vietnamese stock market.

Before that news came out, many investors predicted a high chance of lowering interest rate. However, it also believed that the European Central Bank (ECB) did not reduce interest rate, the policy did not not loosen much. That was the reason why when Vn-Index hit 1,000 points, there was a sharp correction. The “market marker” group took advantage of that information to put pressure on the market.

Fed’s interest rate lowering caused two issues, good for the stock market and pressure on the exchange rate. When Fed reduced interest rate, the capital in flowed, the dollar value was no longer high, it was likely to affect exporters.

The trend was still good for the stock market, but on the contrary, when the global economy declined, Fed acted. Fed lowered interest rate, signalled to the world that the US economy showed signs of decline, so did the global economy.

Looking ahead, many other banks will follow Fed’s direction. As the Fed lowered interest rates, the dollar fell, other banks also acted similarly to ensure the global economy followed a common trajectory. In the near future, the stock market will be greatly affected

Vietnam stock market at the end of this year still go in a positive direction. Fed and big Vietnamese banks reduce interest rate will affect revenue and profit of businesses. Foreign cash flow easily enters more emerging markets and is the driving force for the demand for securities to increase. Increasing demand will improve the target solution to create stronger attraction.

Moreover, the project to increase the capitalisation of Vietnam stock market to 100 percent of GDP has helped the value of stocks increase and new goods with new quality to join the market, thereby attracting more cash flow to join the market. The possibility of VN Index surpassing 1,000 points will be very positive

Clearly, the big cash flows have not actively participated in the market, partly because the impact of business results was not positive. Six-month revenue declined, increased profit cannot create attraction.

Foreign investors had a net buying from many sessions but the buying pressure was not too strong, because they expected Fed’s interest rate reduction information. In addition, credit on real estate was tightened. Enterprises issued bonds with high interest rate, thereby absorbing cash flow on the stock market, making liquidity less vibrant.

But credit tightening is a long-term orientation, the issue of bond issuance will be under short-term pressure, and then it will expand again. The possibility of strong cash flow from now to the end of the year is supported by inflowed foreign cash to create positive cash flow for the market.

VN Index may exceed 1,100 points but the probability is not high

Phan Dung Khanh, director of Investment Consulting, Maybank Kim Eng Securities Limited (Maybank Kim Eng) shared that Fed lowered interest rate technically as much, in the context that they had kept and raised interest rates for the past 11 years.

The US stock market dropped the day before, there were two reasons: that had been forecasted before, and Fed Chair said that the move to lower interest rate should not be understood by investors as a prolonged trend, meaning Fed’s interest rate cut was not likely to happen in the future.

Fed also had difficulties in that issue when lowering interest rates from 2.5 percent to 2.25 percent. It should be noted, the highest in the history of the US dollar interest rate was 20 percent, which was 10 times the current rate. So if compared in history, the interest rate was not high, so the possibility for Fed to lower interest rate further was not much.

Not only the Fed but many central banks in the world like Japan, interest rate is negative, so it is very difficult to lower interest rate further. Fed is similar, interest rate is already low, can only be lowered a little.

In addition, that is the problem of public debt and the US budget deficit. Fed’s balance sheet was at its highest level in history, so Fed had difficulty in lowering interest rate. Last night, the US dollar rose strongly while it should have reduced.

The big concern is that central banks and commercial banks in other countries lower interest rates to balance with the actions of the US dollar. Accordingly, there is concern about currency war.

In the short term, lowering interest rate is good, but it is in a normal economy. However, at present, big economies such as Japan and Europe are having negative interest rates, the European economy has not developed well while the US economy has increased relatively well.

The US economy grows but inflation is very low, this does not usually happen. When the money is pumped, the inflation increases and the economy grows. In this case, the economy is still growing but inflation does not reach its target, while public debt is high.

 


Category: Stocks, Vietnam

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