HaNOI: The US Federal Reserve’s (Fed) recent interest rate cut will have a positive impact on the Vietnamese securities market and help it attract money, while gold and real estate are still the gloomy investment channels, experts have forecast.
On Sept 19, the Fed cut rates by 50 basis points (bps) in response to falling inflation and clear signs that the US economy is slowing.
Forecasting where investment money will flow after the Fed’s rate cut, finance and banking expert Nguyen Trí Hieu said stocks were still an attractive prospect.
There were many optimistic signals and the market would get a lot of interest from investors who expect the Fed’s decision to have a positive impact on the global stock market including Vietnam.
Therefore, he assessed that stocks would have good growth this year.
Sharing the same view, Maybank Kim Eng Securities Company investment analysis division director Phan Dung Khanh said the Fed’s interest rate cut would positively affect the stock market as the banking system could boost credit growth that could improve the liquidity of the economy in general and the stock market in particular.
Khanh added that the lower dollar interest rate would contribute to attracting international investment capital into the markets of developing countries, which have a significant difference between domestic currency interest rates and dollar interest rates.
After a long period of net selling, foreign investors also started to return to net buying on the Vietnamese stock market for the past few sessions.
The Fed’s large rate cut is a double-edged sword for Vietnam because the resulting decline in the value of the US dollar reduces depreciation pressure on the dong but a slower US economy will weigh on Vietnam’s gross domestic product (GDP) growth, according to investment management firm VinaCapital.
Earlier in 2024, the dong depreciated by nearly 5% year-to-date (y-t-d) prompting the State Bank of Vietnam (SBV) to aggressively tighten monetary policy by draining liquidity out of the country’s money market.
Some experts even expected the SBV to go further and actually hike Vietnam’s policy interest rates by 50 bps later this year.
All of those developments helped support the value of dong but depreciation pressure on exchange rates across Asean only really started alleviating from late June when Fed rate cut expectations started increasing.
“We do not expect the SBV to follow suit, but we now see no possibility that the SBV will hike rates as the depreciation of the dong now stands at less than 1.5% y-t-d, which is much more in line with the SBV’s comfort zone,” VinaCapital stated in its latest report.
On a more concerning note, however, is what the large rate cut said about the US economy.
“While we are not surprised by the Fed’s rate cut, we are concerned about what the size of it indicates about the US economy.
Exports in general and to the US specifically (which were up nearly 30% in the first eight months of 2024) have been the most important driver of Vietnam’s GDP growth this year, so a slower US economy will likely reduce US consumer demand for “Made in Vietnam” products such as laptops, mobile phones, and other goods.
Consequently, Vietnam’s GDP growth will have to be driven by internal factors in 2025 in order to offset the impact of the slowing US economy.
The report highlighted that fortunately the government has a number of tools it can use to propel the economy, such as increased infrastructure spending and facilitating a further thawing of the real estate sector.
VinaCapital shared that it looked likely that real estate transaction volumes in Vietnam would increase by as much as 35% in the first nine months of 2024 compared to the same period a year earlier.
Focusing on those two sectors would directly boost the economy and a more robust real estate market would almost certainly improve consumer sentiment and consumption in Vietnam, which has been somewhat subdued in 2024.
“We have often stated our belief recently that the boost Vietnam’s GDP is currently enjoying from export growth would likely taper down in the year ahead.
“The Fed’s move essentially confirms that. Ramping up infrastructure spending and accelerating the revival of the real estate sector are two powerful tools the government has at its disposal to avoid the ramifications of lower export growth,” the company emphasised.
Hieu noted that the value of the US dollar was on a downward trend and would likely continue to decrease as the Fed further lowers interest rates.
As a result, the dollar’s value was not expected to stabilise until the end of the year. Hieu also pointed out that investing in foreign currencies was not a popular choice among most investors. — Viet Nam News/ANN
