Forecast: more money to be put in stocks

VietNamNet Bridge – Recent forecasts have all predicted that more money will flow into the stock market in the time to come. And the main reasons for the conclusion? Bank interest rates have been decreasing and stock prices have decreased to the point where they are attractive to investors.

Interest rates believed will drop further

The HCM City Securities Company (HSC) believes that the VND basic interest rate will decrease by another 2% by the end of January 2009. This means that the basic interest rate would decrease to 10%, which also means the maximum lending interest rate would be 15% per annum. In fact, the lending interest rates currently applied by big banks are below 14%, for certain clients, while the popular rates are between 14.5-16%.

Vietcombank’s Securities Company’s (VCBS) report also said that following a series of measures to loosen monetary policies, deposit and lending interest rates both have been decreasing, which it believes will revitalise the stock market.

“Deposits will become less attractive as an investment channel. Therefore, it is likely there will be a big volume of money injected in the stock market as stock prices have decreased so deeply,” VCBS’ report reads.

The Saigon Securities Incorporated (SSI) also believes that the basic interest rate is now under pressure to decrease further in the context of the economic development slowdown and the interest rate cuts all over the world.

If interest rates are cut further, this would help make the stock market more attractive as money would be injected in stocks which are considered reasonably-priced.

In a newly-released report analysing Vietnam’s economy in the first nine months of the year, Eurocapital cites four factors it believes are responsible for making bank interest rates go down: 1/ the usable capital and liquidity of banks has improved 2/ banks have to cut deposit interest rates to make profit 3/ banks have cut lending interest rates to boost disbursement and 4/ banks have to lower interest rates to become competitive.

Interest rate cuts benefit stock market

Securities companies have also pointed out that lower interest rates would create good conditions for listing companies to access bank loans and reduce production costs.

Statistics released by Eurocapital show that in the first two quarters of the year, high lending interest rates pushed finance costs higher. 163/209 (78%) surveyed enterprises had higher finance costs in the first two quarters of 2008 compared to the first half of last year. 120/209 saw their finance costs up by over 50%.

Experts, agreeing with VCBS and SSI, say that when depositing money becomes less attractive, investors will inject their money in stocks which have reasonable prices.

Reports by some foreign institutions which have been released recently say that Vietnam’s stocks are now less attractive than those of many other markets. However, idle domestic money is believed will still flow into Vietnamese stocks as it cannot ‘cross the border’ to go to places where the stocks are more attractive.

Source: TBKTVN