Prospects for growth in low-interest rate environment

January 03, 2024 | 10:16
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The Vietnamese economy has passed its hardest time, and a mild recovery will be the theme of 2024. The prevailing trend in interest rates is holding steady at low level. Therefore, selective investment activities are recommended in specific industry groups with unique narratives.

According to Investment Outlook 2024, an annual strategic report from FinPeace, net incomes across the entire market rebounded to high levels in 2021, primarily contributed by the banking sector. In contrast, the manufacturing and services sector, as the long-term driving force for economic growth, is yet to fully recover from the low base of 2023.

Prospects for growth in low-interest rate environment
Nguyen Tuan Anh, chairman, FinPeace Group

Looking into 2024, with easing inflation, decreasing interest rates, and the expected global economic recovery, export activities are also anticipated to rebound. With supportive policies from the government and the global economic recovery, GDP in 2024 is forecasted to grow 5.8 per cent, and the overall market profit could increase by 10-15 per cent.

The big picture of Vietnam’s financial market is expected to brighten in 2024, particularly for listed companies outside of the banking and real estate sectors.

This optimism stems from several factors. Firstly, a significant reduction in lending interest rates in 2023 and the forecasted maintenance of low rates in 2024 will support the economy and business operations. Secondly, domestic consumption is expected to recover due to government support in both fiscal and monetary policies, especially related to the reduction of VAT.

What is more, exports are projected to continue its recovery in 2024 as demand from the US and EU returns. Meanwhile, public investment and foreign direct investment are expected to remain at high levels.

However, the economic recovery is expected to continue at a slow pace, facing various challenges. Three industry groups are expected to show fundamentally optimistic growth in 2024: steel, electricity, and oil and gas.

In the short and medium term, the steel industry is expected to recover due to the global real estate market warming up. This results from the close link between the steel industry and construction activities, especially in Vietnam, where 65 per cent of domestic steel consumption serves construction activities.

In the long term, the Vietnamese steel industry is expected to continue positive development during the demographic golden period and the trend of shifting steel production structure from China to developing countries, including Vietnam.

The electricity sector continues to experience strong growth. In the short and medium term, addressing the electricity shortage in 2024 will double the workload for electricity construction projects compared to 2023, making electricity stocks comprehensive winners.

In the long term, the electricity industry is expected to enter a period of strong growth, averaging 8.5 per cent annually over the next eight years. With a forecasted high economic growth rate compared to the region and the world, the average electricity consumption per capita in Vietnam is still low, providing ample development opportunities.

In the oil and gas group, in the short term, the industry’s narrative revolves around accelerating the implementation of Lot B of the O Mon project. Upstream companies ensure stable growth of 10-15 per cent over the next three years. The demand for gas for electricity production by 2030 is expected to double the current level.

In the long term, with the forecast of doubling the demand for gas by 2030 and the nation’s power development plan, the gas industry will enter a rapid growth cycle over the next 10 years, with a focus on expanding gas power.

Prospects for growth in low-interest rate environment

In 2024, FinPeace positions VN Index as entering the first phase of a bull market. During this accumulation phase, we will not see a significant increase in liquidity, and the market will not be able to convince the majority to participate. Investors tend to choose the safest and best-valued stocks to buy. This is an opportune time to accumulate stock assets, especially those with a history of regular dividend payments at deep valuations and companies from critical industries and services in the economy.

The 2024 landscape will showcase bright hues. On the VN Index chart, visually apparent trends and the most significant waves in amplitude and time will still be upward, reflecting the primary long-term upward trend of the VN Index.

Interest rate cutbacks designed to assist borrowers Interest rate cutbacks designed to assist borrowers

Several Vietnamese banks implemented substantial interest rate reductions in 2023 to stimulate loan uptake across various sectors, despite challenges in meeting credit growth targets.

By Tuan Anh

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