With the money placed in bank accounts at a high interest rate late last year and early this year reaching maturity, plus the central bank’s policy interest rate cuts, a massive volume of cash from the savings channel has probably begun to shift away.

Liquidity soars

After the State Bank of Vietnam (SBV) brought down its policy interest rates for the third time in late May, liquidity in the stock market started to vastly improve.

Specifically, the average matched trading volume on the HOSE was 639 million shares per session during the week from May 22 to 26, before it shot up 32% to nearly 842 million shares a day between May 29 and June 2.

Later, from June 5 to 9, the trading volume further rose by 11% to nearly 932 million shares per session on average, with remarkably a record high of over 1.2 billion shares on June 8.

During the week from June 12 to 16, however, the trading volume fell by 10%, averaging out at nearly 839 million shares per session.

The reason is said to be that investors are afraid of the ongoing profit-taking pressure, and currently waiting for the outcome of the meeting of the U.S. Federal Reserve (Fed).

That said, the average daily trading volume from June 12 to 16 was still 35% higher than in the first week of May (from May 8 to 12).

Notably, as soon as news came in of the fourth policy interest rate reduction by the SBV on June 16, liquidity on the last trading day of the week grew 59% against the preceding session, hitting nearly 1.08 billion shares on the HOSE alone.

Along with better liquidity, the VN-Index also went up positively, with an increase of more than 7.2% between May 1 to June 16, peaking on May 24 with a gain of over 5%, after it was reported that the central bank would lower its policy interest rates for the third time.

Such a detailed analysis through each period shows that a massive volume of cash has apparently displayed signs of more noticeable movements following the consecutive interest rate cuts by the central bank.

Data on newly opened securities trading accounts further reinforces a gradually more positive outlook for the stock market in the coming time.

As per statistics provided by the Vietnam Securities Depository (VSD), the number of securities trading accounts newly opened in May 2023 was 104,966, nearly five times larger than in April.

This is also the month with the greatest number of new securities trading accounts within nine months from August 2022.

Rising liquidity is attributed to the fact that the stock market has further attracted new investors.

This May was the second month in a row with improvement in market liquidity, as the average matched trading value on the HOSE picked up 9% month-on-month to over VND10 trillion per session, according to Mirae Asset Securities (Vietnam) Joint Stock Company.

This trend is expected to continue in June.

Opportunities in H2

With the money placed in bank accounts at a high interest rate late last year and early this year reaching maturity, plus the central bank’s policy interest rate cuts, a massive volume of cash from the savings channel has probably begun to shift away.

The ceiling interest rate for deposits with a term of less than six months has been slashed by 1.25 percentage points in the latest three adjustments by the SBV, whereas the interest rates for those of six months or longer, which are not subject to the ceiling imposed by the central bank, have dropped even more sharply.

For example, for deposits with a term of 12-13 months, the interest rate was sometimes 10-11% per annum in late 2022, but now it is only around 7%, or 8% at most.

For this reason, the P/E (price-to-earnings) ratio of 12-month savings is currently between 12.5 and over 14, while that of the VN-Index is 11.8.

Compared to the figure of 9.95 in late 2022, 11.8 is already a better ratio, but it is still lower than what savings accounts at banks can offer, suggesting that the valuation of the stock market remains quite tempting.

Obviously, since interest rates have taken a headlong plunge in just a short time over the past few months, the appeal of the savings channel has decreased significantly.

It is noteworthy that along with the return of personal savings, idle money from the business community will likely go back to the stock market as well.

Besides those struggling with cash flow bottlenecks, there are still enterprises with healthy cash flows and a considerable amount of idle capital, which however have been unable to expand their operations over the past time due to a decline in orders, sluggish demand, and mounting risks in the economy.

Therefore, these enterprises may step up their transactions in the securities channel again once they realize the market is getting back to an uptrend, now that the interest rates bank offer are no longer enticing.

This is what happened during the two-year climax of the pandemic in 2020 and 2021, when quite a few companies on the bourse enhanced their investment and swing trading to reap more profits.

If such a shift in cash flows carries on and further intensifies in the coming months, the prospect for the stock market in the second half of the year will be more optimistic.

The short-term correction pressure is of course still present, especially when the market has made a series of big gains recently.

Even so, with those changes in the monetary and fiscal policies (from tightening to loosening), all investment channels can benefit in the long run.

The excitement and prospect of the stock market is also reflected in the fact that securities companies have markedly hiked their capital this year, to wait in front for greater business opportunities as well as to boost their competitiveness in the upcoming cycle of the market, with the downtrend said to have ended and a long-term uptrend gradually forming.

VinaCapital in a recent conference commented that Vietnam has high economic growth prospects in the medium and long terms, creating a driving force for the stock market to grow, thereby opening up opportunities for investors in the market.

The profits of listed companies, according to this investment management firm, will probably plummet in 2023, but from 2024 onwards, the growth in EPS (earnings per share) will likely return to the double-digit level.

Additionally, the upgrade of the local stock market, as evaluated by VinaCapital, would make it a magnet for international and domestic investment capital flows, thereby expanding the size of the market thanks to increased liquidity.

The operation of the new trading system KRX, which enables T+0 transactions and the launch of new products, is expected to lure more investors into the stock market.

In another development, after the period of net selling in April, foreign investors in May and the first week of June turned net buyers again with a value of more than VND1.7 trillion on the HOSE alone.

Along with that, the proprietary trading departments of securities firms net bought nearly VND663 billion in the same period.

Source: Saigon Times