The expert from VNDirect believes that when domestic interest rates show signs of cooling, investors may channel some of their capital back into the stock market. Meanwhile, the Fed has eased up on its monetary policy management after risks to the global banking system. Notably, the Fed declared that "continuously raising interest rates" is no longer appropriate due to the impact of the recent banking crisis. Fed has said they are ready for another interest rate hike instead of cutting rates in 2023. However, the market's forecast for easing is more positive than the Fed's perspective. Specifically, the market is currently pricing that there will be no rate hike this year, and Fed may cut rates as early as the second half of 2023 due to the likelihood of a recession.
In Vietnam, the State Bank of Vietnam has twice reduced the operating interest rate in less than a month. Interest rates and stocks always have an inverse relationship, and the cooling of interest rates is expected to be a catalyst for the stock market to recover in the near future.
According to VNDirect analysts, deposit interest rates are expected to continue to decline in the remaining time of 2023 due to the slowdown in economic growth and the stagnant real estate market leading to lower credit demand, forcing the government to increase public-private investment and thus pumping more money into the economy. NHNN A reversing monetary policy in the second half of 2023 may further reduce operating interest rates.
Deposit interest rates may continue to decline slightly this year, but it is difficult to reduce significantly due to exchange rate pressures and inflation risks still exist, and credit growth is targeting 14%, requiring banks to balance their sources of funds.
According to VNDirect's analysis, VN-Index is currently trading at 0.7 times the average 5-year P/E and 0.7 times the average 5-year P/E. On March 23, the average 12-month deposit interest rate fell to 7.5% per annum from 7.8% per annum on February 23.
Meanwhile, the price-to-income ratio has increased to 8.6% from 8.5% in December 2022. Adding the dividend yield of 2.0% and the estimated market interest rate of 10.6%, the valuation buffer (the difference between market profit and deposit interest rates) has increased to 3.1% (+0.8pp compared to February 23).
"Although the gap between E/P and the 12-month deposit interest rate has widened in March as deposit interest rates have fallen, the stock market has yet to catch up and there is still room for it to grow," said a VNDirect representative.