Securities under pressure from external risks | Company

Illustrative photo

Limited resistance

US inflation data for August, released just before the Fed’s meeting in September, sent worrying signals around the world. The world’s leading investment institutions and economists are warning that inflationary pressures will rise further with prices and wages spiraling, which could even push the US economy into a recession by 2023.

On the other hand, we see the opposite in Vietnam. As the momentum of production growth continued for the 11th consecutive month, the PMI index was above 50 points, August exports increased by 22.1% over the same period, retail sales of goods and services increased by 0.8% in August and the CPI only increased by 2.9% in August over the same period. Although GDP growth forecasts for the third quarter and for the whole of 2022 are still maintained at a very high level.

The bullish internal factors above have created some resistance which is helping the Vietnamese stock market to adjust with the VN index peaking at the end of August 2022 and not really correcting until September 7th. Meanwhile, the US stock market’s S&P; 500 index peaked on August 16 and continued to decline by a margin of minus 10.4%, while the VN index fell around 6.8 %. However, resistance is also limited and the Vietnamese stock market is reflecting more clearly on the pressures of external risks, which are in the immediate term the Fed’s interest rate hike in September. Nevertheless, the last months of 2022 could be stronger than the market expects.

The pressure of the US dollar weighs heavily on the Vietnamese dong, and in order to keep the exchange rate relatively stable for many months, there has been some sacrifice in the sale of foreign currencies. A recent report by ACB Securities Company estimates that the State Bank of Vietnam has sold about US$21 billion in foreign exchange reserves since the start of 2022, which is equivalent to 19% of total reserves, and bringing the current reserve at an estimated level of just US$89 billion.

If the FED continues to raise interest rates sharply and continuously in September and the following months, this pressure will also continue to increase. This is further reinforced by the risk that Vietnam’s main export markets, such as the EU and the United States, will reduce growth, which could lead to lower export turnover.

Long term risk

Although there have been back-to-back assessments recently that predicted that Vietnam’s economic growth will still be very positive in 2022, as well as that listed company profits will increase in the range of 20-25%, the actual stock market does not don’t look at the numbers. . Corporate earnings may still be high on current numbers, but that’s actually due to early year benefits. Earnings growth in the last quarter of the year is slowing and 2023 could be a year of many difficulties.

On the other hand, the stock market also faces the fight against imported inflation as mentioned above. In order to keep the local currency from depreciating under the pressure of rising interest rates around the world, we will have to sacrifice credit growth, otherwise we will have to raise interest rates. It is no coincidence that the stock market adjusted sharply after the State Bank of Vietnam allocated a line of credit in early September. The stock exchange realized that the credit was not bigger but only structured from place to place. Proof of this is that bank stocks immediately crashed when investors feared the potential for earnings growth was diminishing.

The limited lending capacity of the banking channel will also lead to cash flows being drawn more heavily from all other channels, of which the stock market is a typical example. Large companies and small companies will no longer have idle money to invest in securities like in the period from 2020 to early 2022. It can be seen that liquidity in the stock market drops sharply when some of the money returns to manufacturing, some is withdrawn to pay corporate bonds before maturity, and some is used for huge volumes of newly issued stock. From an average transaction of 35 trillion VND to 40 trillion VND per day, it has now fallen to around 10 trillion VND to 15 trillion VND per day.

The Fed’s 75bp rate hike on Sept. 21 may be the latest short-term bad news, but it’s just another take on the growing risks in the global fight against inflation. The Fed’s message is still to resolutely rein in inflation despite the discomfort factor, which means that the growth rate will still be at this level for some time to come.

In the long term, the Vietnamese stock market reached the peak of the bull cycle in early April 2022 after the VN index rose 131% since the start of the cycle. The bear market recession cycle is always accompanied by macroeconomic risks and lasts for years, ending only when the risks are mitigated. For example, the end of geopolitical tensions will reduce the prices of fuel and basic raw materials, and supply chains will be restored. In this long-term bearish cycle, there will be bulls in the opposite direction, but this is only a short- to medium-term reaction that will not change the main momentum.

Saigon Investment