Transactions at VPBank (Source: cafef.vn) Hanoi (VNS/VNA) - Lower lending rates in the financial-banking market maynot mean good things for the securities market, specialist Dao Phuc Tuong saidon August 13.
Lower saving rates hit money savers first because their savingsare not as profitable as they were, then purchasing power declines, Tuong,former investment manager at APS Asset Management, said.
“So if interest rates are getting lower, it shows businesses are strugglingwith their operation, leading to higher risks on the securities market,” hesaid.
Lowerinterest rates pull the rates of government bonds down and the risk premium hasto increase, he added.
For example, in the past 10 years, the US government bond rateshave fallen too much while the US market’s risk premium has kept increasing, hesaid.
“When both interest rates and earnings go down, the company’s price-to-earnings(P/E) ratio will drop too,” the analyst said. “If earnings have a positiveimpact on P/E, the company shares will rise.”
“Interest rates will fall to a certain level. We cannot see it as a good factorfor the securities market.”
According to Nguyen Duc Hung Linh, deputy CEO and Chief Investment Officer atPVI Asset Management, the average interest rate has been cut by 100 basispoints since the beginning of the year.
“The declining pace is getting faster as interest rates have been trimmed bymore than 80 basis points since May,” he said.
In the banking sector, the average interest rate for saving terma of 12 monthsranges from 6.0 percent to 6.5 percent.
The market is expecting further rate cuts to help bolster the businesscommunity and the macro-economy, especially when local companies are strugglingwith the COVID-19 pandemic.
Economist Nguyen Tu Anh saidthat the recent rate cuts by the central and commercial banks are reasonablebecause of low demand for borrowing.
“There must be a close look at the relation between interest rate andinflation,” he said. “If interest rates keep falling further, people willswitch to hold onto foreign currencies.”
“If the price of pork is under control, given currentconditions, inflation in 2020 will stay below the targeted 4 percent,” Linhsaid.
In addition, there is no need to worry about the lack of dollar supply as theState Bank of Vietnam (SBV) will buy more greenbacks to raise the foreignreserve and keep the Vietnamese dong stable, he said.
Economist Anh said hastening the budget spending for infrastructure developmentis the key to boost the economy in a struggling world amid the COVID-19 pandemicand rising geo-political tensions.
“Public investment is among the spearheads to drive the economy, but Vietnamhas failed to take advantage of it because of a poor legal framework,” Anh said.
“The amended Law on Public Investment, taking effect on January 1, is expectedto help resolve all legal issues related to development projects.”
“Vietnam has room to boost its economy using public investment,” Anh said.
In the first seven months of the year, public spending increased by 34 percenton-year. Since the beginning of August, three transportation infrastructureprojects will receive funding from the State budget instead of being jointprogrammes under the Private Public Partnership (PPP) deals.
Those activities will boost the spending and inject “real money” into theeconomy, Anh said. “What really matters now is which sectors and companies willreally benefit from those activities.”
According to the economist, the Government expects to inject about 560 trillionVND (24.3 billion USD) into infrastructure projects in 2020, thus there is muchwork to do in the last four months of the year.
But the spread of the coronavirus may hinder the work, he said, as foreigninvestors are not allowed to enter Vietnam to see the potential destinations,so they are unwilling to open their chequebook, Anh added.
The unpredictable development of the pandemic also has a negative impact on thesentiment among local businesses as they worry about the economic downturn, hesaid.
“But when people understand the nature of the virus and acceptto live with it, the business community and the economy will have a chance torecover.”
However, specialist Tuong said that even when the Governmentspeeds up the disbursement of the State budget, it doesn’t mean all sectorswill benefit.
“What drives the market up at the moment is the expectations that higher publicspending will boost shares of construction firms, real estate companies andmaterial producers,” he said.
“But if the plan derails, the share prices of those companies will become therisks for investors.”/.
VNA
