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US$2.3 billion withdrawn from stock market, investors begin to worry

Concerns are increasing in the stock market after the State Bank of Vietnam (SBV) raised regulating interest rates and withdrew VND56 trillion (over US$2.3 billion) last week.

The news caused investors to become cautious in bottom fishing activities.

A report showed that in the September 19-23 week, SBV withdrew VND55.8 trillion ($2.4 billion) from the banking system.

The central bank issued VND60.8 trillion worth of 7-day bonds with gradually increasing interest rates, from 4.65 percent per annum early last week to 5.5 percent late last week. 

The interest rate was much higher than the week before, and it corresponded to adjustments of the regulating interest rates announced by the central bank on September 22, 2022 which took effect the next day (the re-discount and refinancing interest rates have increased by 100 points to 3.5 and 5 percent, respectively).

The 7-day buy operation has also been used regularly, with the average daily volume of VND1 trillion, with the interest rate rising from 4.5 percent to 5 percent late last week.

The central bank’s net purchase showed that the liquidity of the banking system has improved considerably. This is also a  sign showing that SBV has been more active in reducing the amount of VND in the banking system, when the risk of inflation and exchange rate at a high level after the US Federal Reserve (FED) raised prime interest rates sharply, which caused the dollar value to climb to a 2-decade record high. Many hard currencies in the world have dropped to a 10 to 40-year low against the dollar.

The risk with the dong/dollar exchange rate is increasing as VND has lost 4 percent of its value since the beginning of the year, though it is the least devaluated currency if compared with other countries.

Commercial banks last week raised dollar prices by VND40-50 to VND23,570 (buy) and VND23,850 (sell).

On September 23, SBV set the official exchange rate at VND23,324 per dollar. With the trading band of +/-3 percent, the maximum dollar price is VND24,023 per dollar.

However, the dollar price at which SBV’s Exchange sold was just VND23,700. This was an important supporting level for the dong, and SBV was likely to continue to sell USD from the forex reserve. 

According to MayBank, SBV sold $13 billion and reduced the reserve by 12 percent.

MayBank estimated that Vietnam’s forex reserve is stable at $100 billion, or 28 percent higher than late 2019, before the pandemic. 

The figure shows that the central bank has monetary support capability and there is no need to raise interest rates.

According to Bao Viet Securities (BVSC), the depreciation of the VND is already at the highest level of the year and the figure may reach 4 percent in 2022.

“The market performance is bad. The cautious cash flow for bottom fishing has lowered liquidity, while foreign investors continue to sell. Too much bad news in the world and Vietnam have thwarted efforts for bottom fishing,” said Nguyen Van Hung, an investor in Thanh Xuan district.

According to the investor, the market experienced a pessimistic week because of less positive information. 

Many investors said high risks still exist, and if some important shares see price differences and the VN Index breaks through the important 1,200-point threshold, a strong sale effect may occur.

In principle, the share market's ups and downs depend mostly on cash flow and profit growth rates of listed companies. 

Cash flow is predicted to continue to be weak in the time to come after SBV raised regulating interest rates and continues net withdrawal from the system.

Soon after SBV raised interest rates, medium and small banks raised their deposit interest rates for both short- and long-term deposits. 

The move will create cash flow to the banking system, but cash to the share market may decrease.

The pressure from hundreds of trillions of dong worth of bonds which mature in 2022 and 2023 may also affect the liquidity of the share market.

Vietcombank Securities (VCBS) commented that the weakened liquidity in the share market last week showed investors’ worries about the short-term risks of the market and the negative information about the world economy.

Manh Ha

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