Stock market reacts to the rise of interest rate

The stock market fell after adjustments in the interest rate market. Photo: Nguyễn Hiền

Negative volatility

After the Federal Reserve System (FED) decided to raise the introductory interest rate by 0.75 percentage points on September 21, the central banks of many countries moved to raise interest rates to control inflation and protect the local currency. Under tremendous pressure from the world macro context, in Vietnam, from September 23, the State Bank of Vietnam also decided to raise points for a series of critical operating interest rates. Rising interest rates caused the world stock market to decline. Moreover, after the interest rates rose by FED, major global stock markets simultaneously dropped points.

Vietnam's stock market is no exception. In that situation, cash flow is more difficult to access, and investors' psychology is affected. The VN-Index has decreased continuously; even the support zone of 1,100 points has been penetrated. The market had many dropping sessions in the last week of September. Entering October, the stock market witnessed struggling sessions, but the market's movements were still in a negative trend. Ending the first week of October, in the trading session on October 7, the market witnessed the plummet of VN-Index with a decrease of 39 points, stopping at approximately 1,036 points. The HNX-Index fell 8.04 points (3.84%) to 226.09 points, and the UPCoM-Index dropped 2.43 points (2.95%) to 79.98 points.

Talking about concerns in the market, Mrs Ho Nguyen Thuy Tien, Director of the Individual Clients Division at Rong Viet Securities, noted interest rate hikes. According to Mrs Ho Nguyen Thuy Tien, policy operators are facing the need to stabilize the exchange rate and control inflation in Vietnam. Therefore, the State Bank has decided to increase the operating interest rate by 1% with the supplying capital interest rate from 4% to 5% and the rediscount interest rate from 2.5% to 3.5%. However, raising interest rates conflicts with Vietnam's policy of promoting economic growth, which was set out at the beginning and is still emphasized today. Along with that, the world economy is coping with the European food and gas crisis, high inflation in the US, problems in China, political tensions, and the Fed raising interest rates.

"I think those are worrying issues in the market right now when cheap money is no longer available, interest rates rise, politics escalate... making the stock market's sentiment quite strong," Mrs Tien said.

Regarding the impact of raising the interest rate on the profits of listed companies, Mr Quan Trong Thanh, Director of Maybank Investment Bank's Analysis Division, said that the average total profit forecast of enterprises in 2022 was about 25 % which was still achievable. Therefore, the impact of the increase in the interest rate on businesses was not too significant. However, it would reduce the profit of the whole market by 3-5%. The industries that maintain high growth rates were, firstly, the retail and banking industries. It is forecasted that the banking industry will maintain a good growth rate of about 25%-30% because the bank could still ensure the credit growth rate if comparing this period with the previous period, in addition to the fact that they can regulate profits through the reserve fund.

Carefully monitor market movements

The stock market is always sensitive and moving forward, so entering the period of rising interest rates, according to experts, in the short term from the next three to six months when the market faces big stories such as exchange rate pressure, interest rate increase, the market will be pending, not participating drastically right away, while those holding stocks are also very impatient.

Mr Quan Trong Thanh, Director of the Analysis Division of Maybank Investment Bank, said that the most favourable scenario was that after this interest rate adjustment, the market price or VN-Index would go sideways, not creating a solid trend yet. However, according to experts of Maybank Investment Bank, business activities would have EPS growth, which means that earnings per share would continue to increase, and at some point, the valuation would drop to a superficial level. If, looking at the long-term perspective and Vietnam's economy was still in a recovery trend, Vietnamese businesses still had enough strength to go through this period within the next 12 months, then this was a good time to invest.

Meanwhile, Mr Tran Thang Long, Director of Analysis, BIDV Securities Joint Stock Company (BSC), said that, up to now, the global stock market's movements were quite bad and going down. However, the market was still weak. On the other hand, Vietnam's stock market was luckier because during the Covid-19 pandemic, we did not have to cut interest rates drastically or implement an easy monetary policy, so there was still room for growth. Therefore, with the efforts of the Government, the National Assembly of Vietnam, and our "room" policies, were still there, Vietnam would still be an essential and attractive destination for domestic and international investors.

After interest rates are adjusted to rising, investment opportunities may be quite bright in the long term, but many people think it will be difficult in terms of short-term investment opportunities. Accordingly, experts said that investors should pay attention and carefully monitor market movements. Let us seize the opportunity if there are adjustments to reasonable valuation and profitability levels. As for the investment prospects of industry groups, it is challenging to choose in the short term because market sentiment changes rapidly. However, in the long term, from the next six months to one year, stocks related to public investment that have dropped recently are an opportunity for investors to accumulate. Besides that, the industry group related to industrial parks is also quite promising when the occupancy rate of Vietnam's industrial parks has reached extremely high levels, and rents price has increased by more than 15%.

Experts also noted that the stock market was a susceptible market to information. As long as some disturbing information appears, it could greatly affect the market and cause strong fluctuations. Therefore, to be able to determine a good stock price, investors need to have a stable, calm mentality and select the correct information to be able to make optimal and more accurate investment decisions.