Vietnam’s stock market fell too fast, continuously losing the 1,400 and then 1,300 point levels to the surprise of many investors. To gain 100 points, the market needed many weeks and months and even a decade to be able to regain the threshold of 1,200 points, but it lost the threshold of 1,400 and 1,300 points very fast.

In just about 10 trading sessions from July 5 to 15, the VN-Index dropped by more than 150 points, or 11%. The market lost a total of about $35 billion.

It is worrying that the liquidity dropped, from over a billion USD per day (over VND23 trillion) to only about VND15-17 trillion a day, much lower than the average of 20 nearest sessions.

In the morning session of July 15, the liquidity dropped to only about VND7.5 trillion on all three stock exchanges (Hanoi Stock Exchange HNX, Ho Chi Minh City Stock Exchange HOSE and Unlisted Public Company Market - UPCOM), equaling about 50-60% of the previous sessions.

Manh Tung, an investor for FPT Securities Joint Stock Company (FPTS), said that the market is now at a rather unpredictable time. The stock price fell deeply but many investors were not willing to sell at a loss.

In fact, the market is influenced by many factors, of which perhaps the most important are cash flow and investors' psychology as well as the buying and selling plans of the big players in the market.

The volatility of the market in general as well as the stocks of industry groups, especially leading market groups, which are banking, securities, steel and real estate at the moment, depend on creators.

In theory, many securities companies have anticipated that the profits of banking, securities and steel groups will increase sharply and remain high in the second half of the year despite the impact of the fourth Covid-19 outbreak.

Lower expectations, cautiously keeping money

Despite the new wave of Covid-19 outbreak that is sweeping countries in the region, including Vietnam, statistics in the first half of the year were still positive.

Vietnam’s GDP grew by 5.62%, compared to 1.82% in the first half of the previous year. The industrial and construction industries saw positive developments. Industry obtained an increase of 8.91% in the first two quarters of the year. Exports are estimated to rise by more than 28.

However, there is stagnation of production in many localities, especially in industrial zones, and the number of Covid-19 infections has skyrocketed. The dual goal of both fighting the epidemic and developing the economy is now much more difficult than before and depends more strongly on the ability to accelerate the vaccinations against Covid-19 on a large scale and whether more dangerous viral strains will appear.

In particular, 19 provinces and cities have imposed social distancing under Directive 16 to combat the epidemic. When the task is a top priority, production and business will be affected locally. Moreover, when it is impossible to determine when business activities will return to normal, businesses will always be in a passive position and do not set high expectations for growth. That will be a factor that has a long-term impact on the stock market.

Many investors also worry about the possibility of high inflation and a change in monetary policy. In the world, many countries have begun to tighten the super-easy monetary policies applied in the past few years as a move to control inflation when the consumer price index (CPI) continuously increases strongly in the past few months.

The US has announced that the consumer price index in June increased by 5.4% over the same period last year. This is the strongest rise since August 2008.

Once monetary policy is tightened again, the cash flow into assets, including stocks, will shrink and may drag down stock prices.

The most difficult problem facing the central banks of many countries is how to withdraw quantitative easing (QE) programs to prevent high inflation without creating seismic effects in the financial and securities markets.

Around the world, some central banks have begun to scale down their asset purchases. The Bank of Canada has reduced bond purchases since April. The Bank of Australia announced that it will do the same in September. The Bank of New Zealand said it would not implement the entire program to buy $70 billion in assets as previously planned. Meanwhile, the Bank of England is close to reaching its goal of buying $1.2 trillion in assets and will likely stop QE as soon as it reaches that milestone.

For the US Federal Reserve (Fed), it is more cautious but has also mentioned reducing the stimulus. Many economists forecast that by the end of this year, the Fed will officially announce the reduction of stimulus.

In 2013, the world witnessed a large-scale sell-off after the Fed announced plans to reduce the stimulus. Bonds sold off on a massive scale, the dollar skyrocketed, and capital was massively withdrawn from the newly emerging markets.

In Vietnam, many reports have also mentioned the possibility of raising operating interest rates of the State Bank of Vietnam (SBV). However, inflation in Vietnam is forecast to be kept at a low level.

According to HSBC, Vietnam's inflation will be controlled well this year. The average inflation is predicted at about 2.8% in 2021, much lower than the maximum target of 4% set by the National Assembly. The consumer price index (CPI) in June increased by 2.41% over the same period of 2020 due to the increase in world input material prices. But domestic demand in many areas, including tourism, fell.

HSBC downgraded its 2021 growth forecast for Vietnam from 6.6% to 6.1%. However, in the long term, Vietnam's growth engine will remain very strong. Once the epidemic is under control, Vietnam will benefit from a strong technology-led recovery and promising FDI prospects, making it one of the most potential countries in the region. As a result, HSBC's 2022 growth forecast is raised to 6.8% (from 6.5%).

In fact, the stock market reflects forecasts about the economy as well as the health of the business community. In Vietnam, most businesses face difficulties, but key businesses in many industries such as banking, steel, securities, retail... still make breakthroughs even in difficulties. Vietnam's economy is still quite resilient. These are factors that support the market.

The stock market also depends a lot on the cash flow. Massive money injection activities in many countries over the past year have caused excess money everywhere. Banks have excess money, and businesses do not use all of their money… Stocks have reached historic peaks in many countries. Vietnam may be no exception.

V. Ha

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