Amid global economic flux, there is a broad consensus that US inflation is on a declining trend, albeit with some unexpected twists and turns along the way. High interest rates could yield unintended consequences, underscoring the importance of a balanced approach.
The geopolitical tensions between Israel and Hamas are seen as potentially intricate, leading to the anticipation of elevated oil prices with limited downward flexibility. Though the prevailing view is that the conflict might not have extensive repercussions, many market watchers are keeping a close eye on developments.
|Dr. Le Anh Tuan, head of Research Dragon Capital
Within Vietnam, the economic perspective is predominantly shaped by three pillars: monetary policy, macroeconomic stability, and economic growth. In the short term, the room for monetary policy alterations seems limited. However, the gradual permeation of low interest rates indicates a cooling price environment, suggesting further potential for rate reductions. This is underpinned by easing inflation concerns, low interbank rates, yet persistent higher rates on deposits and loans.
However, there are palpable liquidity concerns. With sluggish credit growth and feeble money supply, the government appears resolute to boost liquidity. Thus, we anticipate another round of rate cuts before the year’s end.
Macroeconomically, the situation appears steady. Currency devaluation concerns are relatively muted, especially when juxtaposed with other nations. While some countries’ currencies have depreciated by 7-8 per cent, the VND has only declined by about 3-4 per cent.
Significant divergences between the interbank and black-market exchange rates could pose substantial risks for retail investors favouring the US dollar. Given the substantial holdings of US dollars by the public, significant disparities could lead to heightened future exchange rate volatilities. Nonetheless, while short-term rate fluctuations may be concerning, long-term prospects remain sanguine.
Economic growth, primarily based on consumption, manufacturing, and real estate, has been lacklustre, with a probable nadir reached in June. This entails a potential thaw in real estate, an unclear pace of recovery in manufacturing, and a tangible rebound in consumption. Investors have been advised to temper their expectations.
We believe that the stock market moves in cycles. Understanding these cycles can shield investors from downturns between 5-10 per cent and avoid hasty exits during market lows. While inflation and interest rates may not have bottomed out, growth seems to have turned the corner. Medium-term stock market prospects seem stable. However, that does not imply uniform profitability across stocks, and it remains unlikely for the VN-Index to decline beyond 12-14 per cent.
Large-cap stocks are expected to lead the recovery trend with anticipated profit growth of 25 per cent in the last two quarters of 2023, given the previous year’s low base.
Intriguingly, we revise our profit growth projection for 2024 downwards from 24 per cent to a range of 16-20 per cent due to unpredictable variables. However, 2024 still promises a double-digit profit growth spurred by normalising profit margins.
In conclusion, various elements influence the stock market, such as decreasing interest rates, stable exchange rates, and increasing liquidity. While some collapse prevention solutions have been implemented, profitability remains the outstanding issue.
The stock market is in a recovery phase, but profit prospects remain nebulous, leading to uncertainties in the uptrend. However, as profit prospects improve, market recovery will become clearer. Therefore, we believe that investors should not anticipate a 15-20 per cent market downturn. For discerning investors, it’s a time for both optimism and caution.
While Israel itself is not a significant oil supplier on the global stage, the conflict’s implications extend beyond its borders. The risk of a broader regional conflict could reach Saudi Arabia and Iran, nations that collectively account for 17 per cent of the world’s total crude oil supply.
This inevitably impacts some Vietnamese listed companies tied to rising oil and gas, such as PV Drilling, PetroVietnam Technical Services Corporation, Binh Son Refining and Petrochemicals, PetroVietnam Gas, and CNG Vietnam.
With respect to Vietnam’s imports from Israel in 2022, they amounted to $175.8 million, making up less than 0.01 per cent of Vietnam’s total import value. Consequently, should any supply disruption from Israel occur due to the ongoing conflict, the impact on Vietnam’s imported goods is likely to be marginal.
By breaking down the import sectors, it becomes evident that only fertilisers held a relatively larger share of 6.78 per cent of the total fertiliser imports in 2022. In light of this, any setbacks in Israel’s supply may primarily affect the fertiliser sector. Nevertheless, due to its relatively small share and the existing domestic surplus in fertiliser production, the overall consequences are projected to be limited.
Vietnam’s trade relations with Israel have seen notable growth in recent years, with a total export value to Israel of $780.5 million in 2022, accounting for 0.2 per cent of Vietnam’s overall export value. Source: Yuanta Securities Vietnam
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