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How will stock market perform? It’ll depend on interest rates
The stock market has been rising for the last nine consecutive trading sessions thanks to macroeconomic management policies which experts say are going on the right track. However, how the stock market performs in the time to come will depend greatly on interest rate policies.
In theory, when interest rates go up to high levels, investors will inject money in banks instead of the stock market. However, a paradox exists that despite the high interest rates (18-21% for deposit and lending), money has still been flowing into the stock market. Though the average trading volume has been only VND300bil in recent trading sessions, the investment flows have created new excitement in the stock market.
Macroeconomic indices have been encouraging investors. The trade deficit decreased in June to $1.3bil, while the inflation rate decreased considerably to 2.14% in June, lower than the 3.91% level in May.
The State Bank has announced that it has enough foreign currencies for international payment for the imports of key products.
However, financial experts are still wary about saying that the VN Index will rise steadily. It is not very likely that the inflation can be curbed in a short time, while bank interest rates remain at high levels, which means that the VN Index will not see strong recovery.
The world’s oil price keeps rising, which threatens to make commodity price increases steeper. Former Chairman of the Board of Governors of the US FED Alan Greenspan in a meeting with Vietnamese Prime Minister Nguyen Tan Dung during Dung’s visit to the US in late June said that the inflation rate of Vietnam will not return to the one-digit level until the end of 2009.
Analysts have every reason to think that the stock market’s performance will depend heavily on bank interest rate policies. If the interest rate becomes overly high, it will be unaffordable for businesses, including listed companies.
Businesses hope that interest rates will go down by a few percent by the end of the year. Meanwhile, whether or not the interest rates will go down will depend on the government’s macroeconomic management.
The VN Index will increase only when interest rates go down.
The good news is that big sums of money are waiting to be injected into Vietnam. Foreign investors think that it is now the right time to make investment deals in Vietnam as commodities are very cheap. Therefore, the advice analysts are giving investors now is to remain optimistic about Vietnam’s stock market.
VNA
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