The report of VNDirect Research has pointed out 5 major impacts of this action on the Vietnamese economy and stock market.
Firstly, the tightening global financial situation reduces the growth prospects of the world economy, leading to lower demand for Vietnamese exports. The Fed's tightening of monetary policy will increase lending interest rates in USD, thereby reducing people's consumption demand as well as weakening the need for businesses to expand investment. Therefore, Vietnam's export activities may slow down in the coming quarters as consumers in key export markets such as the US and Europe tighten spending.
Second, VND deposit interest rates are under increasing pressure in the last months of the year. As of the end of May 2022, the interest rates for 3-month and 12-month deposits of state-owned banks remain unchanged compared to the end of 2021, while the interest rates for 3-month deposits and 12-month deposits of private banks increased by 20 basis points and 23 basis points respectively compared to the end of 2021.
VNDirect Research believes that deposit interest rates will continue to increase from now until the end of 2022 due to increased USD interest rates and increased inflationary pressures in Vietnam in the coming quarters. However, the increase will not be large with the forecast of interest rates increasing by about 30-50 basis points from now until the end of the year.
12-month term deposit interest rates of commercial banks may increase to 6.0-6.2%/year by the end of 2022 (currently at an average of 5.7%/year), still lower than the pre-pandemic rate of 7.0%/year.
Third, the increase in USD interest rates puts pressure on the foreign debt repayment obligations of the Vietnamese Government and enterprises. According to VNDirect Research's estimate, Vietnam's foreign debt will account for 39% of GDP by the end of 2021. In the context of tighter liquidity in the international financial market, the Government and Vietnamese enterprises will find it difficult to mobilize capital in the international market and have to pay high interest rates.
Fourth, in theory, foreign direct investment flows (FIIs) may be negatively affected by the taper tantrum (a plan to pull the carbon out of the economic stimulus machine by reducing the amount of bonds purchased by the Fed gradually and over the long period before).
However, the Vietnamese stock market has also witnessed a sharp decline in the past 2 months, pushing the valuation of stock indexes back to an attractive position when compared to the history and stock markets in the region. Attractive valuation will stimulate foreign capital flows into Vietnamese stocks and somewhat reduce the impact of "taper tantrum".
Fifth, the strong USD puts pressure on Vietnam's exchange rate. The strong USD has caused the USD/VND exchange rate to increase by 1.7% since the beginning of the year. However, VND is still one of the most stable currencies in the region.
The report stated that the basic factors to keep the VND stable in recent years have been maintained, including improved trade surplus and high foreign exchange reserves. VNDirect Research expects the trade surplus to increase to 7.2 billion USD in 2022 from 3.3 billion USD in 2021.
In addition, stable growth in FDI disbursement and abundant remittances also contribute to stabilizing the foreign exchange market. Therefore, the USD/VND exchange rate is forecast to increase by no more than 2% in the whole year of 2022.
Meanwhile, BSC Securities believes that in the medium and long term, the US stock market will be under pressure when tightening monetary policy reduces economic growth expectations. Vietnamese stocks may also be affected similarly in the medium and long term. Therefore, BSC recommends that investors be cautious in the following trading sessions.
