The interest rate support program has little effect on the stock market

VIETNAM, June 4 – A group of brokers and investors are looking at the stock market. Photo vietnamnet.vn

HÀ NỘI — Since the securities and real estate sectors are not on the list of recipients of support, the positive effects of the 2% interest rate support program on the stock market are not not important.

The government officially issued a decree on subsidizing interest rates on loans to enterprises, cooperatives and commercial households on May 20.

The application period is in 2020 and 2023, or the package may end earlier when the total loans with interest rate subsidy reach approximately 40 trillion VNĐ ($1.7 billion).

After the market’s benchmark VN index plunged 24% from its nearly two-month high, falling from 1,524 points to 1,150 points, the announcement of the 2 % is a lifeline for the market on expectations of cash flow return.

In fact, the index had experienced exceptional recoveries for two weeks with gains of almost 150 points. There are growing expectations of the cheap cash flow created from the package worth VNĐ40 trillion, which is equivalent to preferential credit of up to VNĐ1 quadrillion.

However, experts said that this package only has indirect effects on the stock market. Therefore, investors should not expect strong market performance after the package is issued.

On the bright side, Agribank Securities Corporation (Agriseco) said this support package is expected to give businesses a boost to accelerate their speed of recovery, contributing to overall economic growth to meet the government’s target of 6 at 6.5%. But if companies spend government-backed capital for the wrong purpose, it can lead to undesirable outcomes for the economy.

Right after the support announcement, many feared the interest rate package would bring back to the stock market what happened in 2009.

Experts from Agriseco said that 13 years ago, Việt Nam also set up an interest rate support program with the State Bank of Việt Nam (SBV) and applied for loans from short, medium and long term. This policy was part of the fiscal and monetary policies aimed at stimulating the economy which was affected by the global crisis.

The interest rate on the envelope was 4% per year in 2009 and was reduced to 2% per year in 2010 for medium and long-term loans.

After the package was implemented, from 2009 to 2011, speculative cash flows flowed into asset markets such as gold, foreign exchange and real estate, increasing pressure on inflation ever since. 2010. The consumer price index (CPI) rose by 9.19 and 18.58%. year-on-year in 2010 and 2011, respectively.

In the stock market, the VN-Index showed an impressive gain from 230 points to almost 500 points, an increase of more than 100 percent in 2009, with the first appearance of speculative cash flow in the stock market when the interest rate for production and commercial activities gradually decreased.

However, the market was on a downtrend for the next two years. In 2011 alone, the VN index and the HNX index fell more than 25% and nearly 50% from the start of the year, respectively, with average liquidity up to 60%.

At the moment, Agriseco expected the interest rate support program to have positive but not too strong effects on the stock market, as the market size is now much larger than in 2009. Specifically, the market capitalization at the end of 2009 was VNĐ 620 trillion. , accounting for 45% of GDP, while the value at the end of 2021 reached almost VNĐ 5.8 quadrillion, reaching almost 93% of GDP.

“We also believe market growth is being driven by improving business results and internal corporate strength, rather than speculative cash flow,” Agriseco said.

According to the securities company, there are two subjects benefiting from the policy, which are the banks and the companies operating in the supported sectors.

Business sectors on the support list include aviation, tourism, agriculture, marine products and manufacturing industries. Leading companies in these industries are more likely to meet the standards of the package because their resistance to the pandemic is better than others. —VNS

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