Interest Rate Stability Amid Exchange Rate Pressure: Seizing Stock Market Corrections as Investment Opportunities

 In the April strategic report, Maybank IBG Research said that GDP in the first quarter of 2024 grew strongly thanks to gradually improving demand. Inflation in March decreased by 0.23% compared to the previous month, creating more room for the State Bank (SBV) to regulate policy.

However, the escalating exchange rate is a notable issue. VND (listed by Vietcombank) continued to slide in value in March, down 0.6% compared to USD. Although the decline was lower than the 0.7% and 0.9% declines in January and February respectively, this decline brought the VND to its lowest level ever.

According to Maybank IBG Research, the reasons why VND depreciated against USD are: (1) the Fed's interest rates are high; (2) the gap between global and domestic gold prices is increasing; and (3) imports of raw materials (such as fuel, steel, etc.) by domestic enterprises are increasing.

This analysis department expects the difference between domestic and global gold prices to soon reduce as the authorities have identified the problem and will patch legal loopholes to stabilize the market. However, the Fed's interest rates maintained at high levels are still the main reason affecting Vietnam's foreign exchange market in the past 2 years.

Fed interest rates have been flat since July 2023, and no FOMC member is expected to raise rates further at the most recent meeting in March 2024. Although long-term interest rates were expected to be higher in 2025-2026 and longer, the meeting's "dot plot" actually maintained the forecast for three rate cuts totaling 75 basis points. version this year.

Maybank IBG Research believes that the SBV is steadfast in its adaptive stance because economic recovery is the top priority. The State Bank will continue to use tools such as "jawboning" and issuing treasury bills (T-bills) to raise VND interbank interest rates (usually not correlated with interest rates charged by commercial banks). applicable to customers) in the near future.

More importantly, the SBV may accept larger foreign exchange rate fluctuations (up to 4-5% as of last year compared to 2.3% as of March 29, 2024). "The State Bank will keep interest rates unchanged while waiting for the Fed's first interest rate cut, possibly in June 2024," Maybank IBG Research forecasts.

In March, the upgrade of the Vietnamese market to emerging market by FTSE took another step forward when the State Securities Commission announced and solicited public comments (within about 30 days) on the project. Draft a circular to abolish pre-funding requirements. This has contributed to pushing the market up.

However, the upward momentum is weakening as VN-Index is approaching the resistance area of 1,290 - 1,330 points. Furthermore, according to Maybank IBG Research, margin lending at some securities companies is currently approaching the peak of 2022. With some securities companies tightening margins, this analysis department I think the market will adjust in April but not much.

Maybank IBG Research believes that this will be an opportunity to accumulate stocks when the economic and stock prospects are brighter. The analyst forecasts GDP will grow 5.8% year-on-year in 2024 (compared to 5.05% in 2023), thanks to exports and domestic consumption. A stronger recovery is expected in the second half of 2024.

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