Recent forecasts have all predicted that more money
will flow into the stock market in the time to come. And the main
reasons for the conclusion? Bank interest rates have been decreasing
and stock prices have decreased to the point where they are attractive
to investors.


Interest rates believed will drop further


The HCM City Securities Company (HSC) believes that
the VND basic interest rate will decrease by another 2% by the end of
January 2009. This means that the basic interest rate would decrease to
10%, which also means the maximum lending interest rate would be 15%
per annum. In fact, the lending interest rates currently applied by big
banks are below 14%, for certain clients, while the popular rates are
between 14.5-16%.


Vietcombank’s Securities Company’s (VCBS) report also
said that following a series of measures to loosen monetary policies,
deposit and lending interest rates both have been decreasing, which it
believes will revitalise the stock market.


“Deposits will become less attractive as an investment
channel. Therefore, it is likely there will be a big volume of money
injected in the stock market as stock prices have decreased so deeply,”
VCBS’ report reads.


The Saigon Securities Incorporated (SSI) also believes
that the basic interest rate is now under pressure to decrease further
in the context of the economic development slowdown and the interest
rate cuts all over the world.


If interest rates are cut further, this would help
make the stock market more attractive as money would be injected in
stocks which are considered reasonably-priced.


In a newly-released report analysing Vietnam’s economy
in the first nine months of the year, Eurocapital cites four factors it
believes are responsible for making bank interest rates go down: 1/ the
usable capital and liquidity of banks has improved 2/ banks have to cut
deposit interest rates to make profit 3/ banks have cut lending
interest rates to boost disbursement and 4/ banks have to lower
interest rates to become competitive.


Interest rate cuts benefit stock market


Securities companies have also pointed out that lower
interest rates would create good conditions for listing companies to
access bank loans and reduce production costs.


Statistics released by Eurocapital show that in the
first two quarters of the year, high lending interest rates pushed
finance costs higher. 163/209 (78%) surveyed enterprises had higher
finance costs in the first two quarters of 2008 compared to the first
half of last year. 120/209 saw their finance costs up by over 50%.


Experts, agreeing with VCBS and SSI, say that when
depositing money becomes less attractive, investors will inject their
money in stocks which have reasonable prices.


Reports by some foreign institutions which have been
released recently say that Vietnam’s stocks are now less attractive
than those of many other markets. However, idle domestic money is
believed will still flow into Vietnamese stocks as it cannot ‘cross the
border’ to go to places where the stocks are more attractive.