How will the coming economic stimulus package affect the stock market?

Get a lot by giving a little

According to experts, a huge economic stimulus package of up to VND 800,000 billion (equivalent to US$35 billion) is expected to be launched from the beginning of 2022. The market is not currently in recession and is instead reaching a new historic high. Therefore, the impact of this stimulus package on the market will be different to that of the crisis in 2009.

Along with that, not strictly controlling the purpose of capital use in the period of 2009 overloaded the stock and real estate markets, leaving many consequences, as well as data for how to deliver future economic stimulus packages.

Talking on this issue, Mr. Nguyen Quang Thuan, Chairman of the Board of Directors of FiinGroup, said, “it is difficult to expect the support package of VND 800,000 billion to improve security, like the one in 2009”.

A representative of FiinGroup said, “in 2009, the liquidity of the banking system was very weak and inflation was high, while now we do not face that problem.”

“Besides that, the total value of the economic stimulus package in the period between 2009-2013 is also quite large, up to VND 150 trillion, about 8% of GDP in 2008. This is no less than the expected size of the current package. However, we also did not see a big impact on the stock market in the later period, although a stimulus package aimed to improve corporate profits.”

“At the same time, during the economic crisis in 2009, the stock market was still small, with more than 200 ticker symbols and a capitalization of VND 400,000 billion. This is equivalent to 1 in 20 of the current package. Up to 72 stocks increased their values by double, such as construction stocks, iron and steel, real estate, banking and securities. Currently, the market size is much larger with 1,700 listed stocks and as a result capitalization exceeds the GDP scale.

The representative of FiinGroup also said, “this support package is oriented and focused, targeting a number of objects and areas negatively affected by Covid-19. The possibility of real money being lost is small, but it should not too expected that the stock will increase significantly in the near future.”

However, according to Mr. Thuan, although the increase cannot be calculated accurately, there are still opportunities to do so in the future. In terms of value, securities are currently still at a low level, so the impact will be positive on the market, especially the stocks of large enterprises.

Investors will kick-start market growth

According to Dr. Quach Manh Hao, Lecturer at Lincoln University (United Kingdom) and founder of the QMV Group, the context of the second economic stimulus package is completely different from the first.

In 2009, the economy changed from a shortage of money to an excess of money and as a result, the excessive liquidity injection led to the growth of asset markets, including securities. This year the market has an excess of capital and the liquidity of the banking system is abundant, causing the stock market to rise.

Notably, since the information comes via politicians and economic experts, the overall risk level in the market tends to decrease. At that time, property valuations rise. This is one of the factors that has helped the stock market continue to skyrocket recently.

According to Dr. Quach Manh Hao, the popular sentiment is that investors are looking forward to the economic support package, hoping it leads to the positive growth of the stock market.

However, this expert said that the designers of the current economic stimulus package are aiming to return money that has not been used to go into projects on infrastructure and social security. This also alleviates the problem of inflation risk.

Therefore, when the support package is officially announced, the economy will begin to function normally and the stock market will have to compete with the Government in using the society's money. Therefore, it does not compare this package to those in the past.