Search expands for investing options amid market uptick

Despite the US Federal Reserve raising interest rates by a quarter of a percentage point last week, domestic interest rates continue to decline. As of July 19, the interbank interest rate was 0.39 per cent for the overnight term, reminiscent of rates seen at the outset of the COVID-19 pandemic.

Although bank deposits are still increasing, a decrease in cash inflow into banks is expected by the end of the year, as one-year savings deposits mature, and investors seek more appealing investment opportunities moving forward.

According to economist Phan Dung Khanh, while savings held attraction as an investment channel in 2022, securities have emerged as the most promising option in the first half of this year.

“This is in light of reduced deposit rates, stable gold and foreign exchange markets, and the sluggishness of the real estate sector,” he said.

The stock market witnessed a significant recovery in the first half of the year, attributed in part to favourable interest rates and increased cash flow. The rise in new personal accounts, in May with 105,000 accounts and June with 146,000 accounts, exemplifies the return of cash flow.

Experts predicted a potential uptick in the stock market during the second half of this year, contingent on falling interest rates and GDP recovery, although the increment may not be robust. In 2024, a strong stock market rebound is anticipated if the macroeconomy absorbs supportive policies.

Hoang Cong Tuan, chief economist of MB Securities, emphasised that risks to the stock market have considerably decreased due to lower interest rates and augmented cash flow.

“However, investors should remain vigilant against potential headwinds, particularly with some listed companies projected to encounter poor business results in the second quarter of 2023,” Tuan said.

Caution advised

In the medium term, Vietnam’s stock market remains attractive, thanks to earlier implementation of looser monetary policy compared to many other countries, along with various fiscal support measures, such as tax and fee reductions and promotion of public investment disbursement. Conversely, the real estate market is not expected to experience excitement this year or early next year, despite having overcome its most challenging period.

Pham Nhu Anh, MB’s general director, expects the real estate market to experience difficulties and potential risks in the last six months of 2023 and 2024, with projects still undergoing legal completion, and delayed construction and product handovers. “The declining confidence of homebuyers further contributes to the subdued market sentiment,” he added.

Though the real estate market exhibits some segments that have slightly recovered after a prolonged stagnation period, Nguyen Huu Huan, a lecturer at the University of Economics in Ho Chi Minh City, believes that the real estate market will take time to thaw, considering a gradual inflow of funds into the sector.

“Nonetheless, investors with available funds may find it opportune to invest, given the substantial discounts offered in the real estate market,” Huan said.

For investors, it is vital to acknowledge that real estate prices may not experience sharp increases in the near future, despite improving market liquidity. Due to its capital-intensive nature, real estate may not be a feasible option for most investors. Instead, partial investment in securities could be a prudent choice for those with limited capital.

Understanding risk

The search for effective investment opportunities amidst a market filled with attractive options has become a concern for investors. Phan Le Thanh Long, CEO of AFA Group and co-founder of Vietnam Wealth Advisors (VWA), emphasised the importance of risk management through asset allocation to achieve regular and stable profits over time.

“Understanding one’s risk appetite and selecting appropriate investment channels are essential for devising an effective capital allocation plan,” Long said.

Looking ahead to the end of 2023, he suggests investors consider holding gold as a protective asset but limit its proportion to a maximum of 10 per cent. With savings interest rates projected to decrease, the stock market’s recovery is likely, but investors should also evaluate the actual production and business situation of enterprises for long-term prospects.

“In the real estate market, the prevailing low-interest rate environment presents opportunities for properties with stable cash flow and attractive discount prices, potentially delivering high investment performance. The appropriate allocation of investments should align with individual capital, goals, and risk tolerance,” he noted.

An increasing number of investors are seeking the assistance of financial advisors to reduce risks and maximise profitability, fuelling strong growth in Vietnam’s asset management industry.

The total assets under management of investment funds in Vietnam during 2017-2022 grew at an average rate of 25 per cent per year, reaching $23.25 billion by the end of 2022, equivalent to 2.44 per cent of GDP.

The potential for growth in this industry is still considerable, as the products in Vietnam’s asset management market are currently limited, and the number of participants is relatively small.

According to a report from Allied Market Research, the asset management market in Vietnam is projected to have a compound annual growth rate of 31.6 per cent in the period 2021-2030, making it the fastest-growing market in Asia-Pacific.

The industry’s expansion is not limited to large fund management companies like VinaCapital and Dragon Capital, but also extends to securities firms that are developing asset management services, consulting models, and personalised investment solutions for their customers. As financial investment requirements continue to grow, the asset management industry in Vietnam is poised for further development.

Experts expect that wealth management will become an attractive option for middle-class and VIP customers, offering safe and sustainable financial plans that adapt to market fluctuations. Accessing wealth management services early can greatly benefit individuals in managing personal finances, even for young people with limited investment capital.

“For investors with substantial assets, accessing property management services becomes even more essential, enabling them to plan for the long term while optimising opportunities for returns,” Long of VWA noted.

The State Bank of Vietnam (SBV) has sent a document to credit institutions and branches of foreign banks and SBV in provinces and centrally-run cities regarding the reduction of interest rates.

Vietnamese businesses anticipate some relief as the central bank slashes interest rates amidst the economic challenges, with credit growth expected to accelerate in the second half of 2023.

Reducing interest rates now will not have a significant impact on inflation, according to Dr. Nguyen Tu Anh, director general of the Department of General Economic Affairs at the Central Economic Commission, in a discussion with Angela Nguyen of VIR.