The US Federal Reserve's recent interest rate cut will have a positive impact on the Vietnamese securities market and help it attract money, while gold and real estate are still the gloomy investment channels, experts forecast.

Early September 19 (Việt Nam time), the Fed cut rates by 50 basis points in response to falling inflation and clear signs that the US economy is slowing.

Forecasting where investment money will flow after the Fed's rate cut, finance and banking expert Dr. Nguyễn Trí Hiếu said stocks were still an attractive prospect. There were many optimistic signals, and the market would get a lot of interest from investors who expect the Fed's decision to have a positive impact on the global stock market, including Việt Nam. Therefore, he assessed that stocks would have good growth this year.

Sharing the same view, Phan Dũng Khánh, director of Maybank Kim Eng Securities Company’s investment analysis division, said the Fed's interest rate cut would positively affect the stock market as the banking system could boost credit growth that could improve the liquidity of the economy in general and the stock market in particular.

Khánh added that the lower dollar interest rate would contribute to attracting international investment capital into the markets of developing countries, which have a significant difference between domestic currency interest rates and dollar interest rates.

After a long period of net selling, foreign investors also started to return to net buying on the Vietnamese stock market for the past few sessions.

Double-edged sword for Việt Nam

The US Federal Reserve’s large rate cut is a double-edged sword for Việt Nam because the resulting decline in the value of the US dollar reduces depreciation pressure on the đồng (VND), but a slower US economy will weigh on Việt Nam’s GDP growth, according to the investment management firm VinaCapital.

Earlier in 2024, the VND had depreciated by nearly 5 per cent year to date, prompting the State Bank of Vietnam to aggressively tighten monetary policy by draining liquidity out of the country’s money market.

Some experts even expected the SBV to go further and actually hike Việt Nam’s policy interest rates by 50 bps later this year. All of those developments helped support the value of the đồng, but depreciation pressure on exchange rates across ASEAN only really started alleviating from late-June when Fed rate cut expectations started increasing.

The market now expects the Fed to cut rates by more than 100 bps this year and by another 100-bps next year, which in-turn drove a near 4 per cent appreciation in the value of the VND since late-June as well as a 7-10 per cent appreciations in the Malaysian Ringgit, Thai Baht and Indonesian Rupiah. The surge in the value of the Indonesian Rupiah enabled that country’s central bank to cut rates by 25 bps last week to 6 per cent.

“We do not expect the SBV to follow suit, but we now see no possibility that the SBV will hike rates as the depreciation of the VND now stands at less than 1.5 per cent YTD, which is much more in-line with the SBV’s comfort zone,” VinaCapital stated in its latest report.

On a more concerning note, however, is what the large rate cut says about the state of the US economy.

“While we are not surprised by the Fed’s rate cut, we are concerned about what the size of it indicates about the US economy,” the report said.

Exports in general and to the US specifically (which were up nearly 30 per cent in the first eight months of 2024) have been the most important driver of Việt Nam’s GDP growth this year, so a slower US economy will likely reduce US consumer demand for “Made in Vietnam” products such as laptops, mobile phones, and other goods.

Consequently, Việt Nam’s GDP growth will have to be driven by internal factors in 2025, in order to offset the impact of the slowing US economy.

The report highlighted that fortunately, the Government has a number of tools it can use to propel the economy, such as increased infrastructure spending and facilitating a further thawing of the real estate sector.

The company shared that it looked likely that real estate transaction volumes in Việt Nam would increase by as much as 35 per cent in the first nine months of 2024 compared to the same period a year earlier. Focusing on those two sectors would directly boost the economy, and a more robust real estate market would almost certainly improve consumer sentiment and consumption in Việt Nam, which has been somewhat subdued in 2024.

“We have often stated our belief recently that the boost Việt Nam’s GDP is currently enjoying from export growth would likely taper down in the year ahead, and the Fed’s move essentially confirms that. Ramping up infrastructure spending and accelerating the revival of the real estate sector are two powerful tools the Government has at its disposal to avoid the ramifications of lower export growth,” the company emphasised.

Commenting on various investment channels, including foreign currency investments, Hiếu noted that the value of the US dollar was on a downward trend and would likely continue to decrease as the Federal Reserve further lowers interest rates. As a result, the dollar's value was not expected to stabilise until the end of the year.

However, Hiếu pointed out that investing in foreign currencies was not a popular choice among most investors, as it would demand significant experience and knowledge. In contrast, bank deposits remained an attractive investment option, particularly as interest rates continued to rise, making this the safest and most secure channel for investors looking to protect their cash flow.

Regarding gold, Hiếu believed that the metal had lost its appeal for investors. The fact that State-owned commercial banks were allowed to sell, but not buy, gold, had increased the sluggish state of the gold market.

Gold fever in the domestic market was eliminated when the price of SJC gold dropped sharply from more than VNĐ90 million per tael to about VNĐ80 million per tael currently. Gold trading supply was very limited.

According to Hiếu, normally, if the Fed reduces interest rates, the US dollar will depreciate and the price of gold will increase and conversely if there is an interest rate hike this will cause the price of gold to decrease. However, the Vietnamese gold market is currently moving in a different direction, not strongly affected by the Fed’s move.

Regarding real estate investments, Hiếu added that although the demand for real estate was still high, house prices too were very high, currently over the budget of most Vietnamese.

A house in Hà Nội costs about VNĐ5 billion, far beyond the payment ability of most people, according to the expert.

When laws such as the Land Law and the Real Estate Business Law are amended, house prices tend to increase. The situation of land fever pushing up prices has recently occurred in some localities.

For these reasons, Hiếu said that the real estate market this year would not really develop stably and sustainably and so investors needed to be wary of risks in this investment channel. — VNS