|
Interest rate increases will result in stock price decreases
In theory, interest rate increases always lead to stock price decreases. However, the latest trading sessions saw stock price increases after a long period of falling down.
Hung, an investor on SSI securities trading floor, is wondering what to use his money for, purchasing stocks or making bank deposits. Other investors have the same concern.
Previously, when the interest rate soared to 12% per annum, investors rushed to sell stocks to get money to make deposits at banks. The recent deposit interest rates have also been cited as the reason that made the stock prices drop further. However, not this time.
Dinh The Anh, Head of the Analysis Division under the Saigon Securities Incorporated (SSI), said the prices of stocks have become more reasonable for investors to buy with the average P/E at 10.8. Meanwhile, listed companies still can pay high dividends to shareholders, at 15-20% per annum. This spells that investors will get the profit of 15-20% per annum on the shares they hold. Moreover, they also have chances to make bigger profit if stock prices increase. In the long term, injecting money in stocks can bring more profit than making deposits. The stock market will recover, sooner or later, while bank interest rates are believed will not stay firm at such high levels as nowadays.
Anh said that wise investors will inject money in cheap stocks of the companies which do not have high proportions of loans. The companies operate in business fields which do not see sharp input material price increases, while the outlets for their products remain stable. These companies operate in the rubber industry and basic materials production.
The latest SSI statistics show that at HCM City Stock Exchange, 57 share items have seen prices falling down to below the book value, including TMC, SFN, ICF, MCP which have the ROE (return on equity) bigger than 15%. The Hanoi Securities Trade Centre has 60 share items which have the price on book value (P/B) lower than 1, while the share items including SCT, S99, DTC, NTP have ROE bigger than 30%.
Head of the Analysis Division under Click and Call Securities Company Phung Thanh Ha said that the stock price increases in the last week reflect investors’ psychology and the supply and demand situation on the market. The stock prices have been decreasing considerably, and investors now want to buy stocks.
However, according to Ha, in the long term, deposit interest rate increases will make stock prices level off.
Analysts say that there are no signs of capital flowing from the stock market to banks. Bankers say that deposits have not increased considerably since they raised deposit interest rates. They said that the higher interest rates only can help prevent depositors from drawing money out.
Le Hong Son, General Director of Phu Gia Securities Company, said that the cash in circulation is lacking as a big volume of cash has been withdrawn from circulation to be kept under the pillows of people. Therefore, banks would find it difficult to attract capital even if they offered high interest rates.
“The link between the deposit interest rates and the stock markets now proves to be not tight,” Son said.
VNN
|
