Fed rate cuts could lend medium, long term boost to Vietnam stock market: expert

A widely anticipated interest rate cut by the Federal Reserve Wednesday could energize Vietnam's stock market in the medium and long term, though it might cause some short-term volatility, an expert says.

However, Tran Hoang Son, market strategy director at VPBank Securities (VPBS), also cautioned that historically, rate cuts were often followed by economic recessions.

He was speaking at a recent finance-focused show hosted by VTV Money and VPBS.

If a recession occurs, the stock market may decline after six months but could recover and grow after one year. If it doesn’t, the market could perform well after six months and experience a rally after a year.

In the short term, or within six months, the market may face sharp declines due to recession fears, which could significantly affect investor portfolios if risks are not carefully managed, Son said.

Although the local stock market is expected to have considerable potential for growth over the next two to three years, it is important to remain cautious to navigate short-term volatility, he reiterated.

When the Fed lowers interest rates, Vietnam will have room to ease its monetary policy and cut rates, which could provide relief to businesses, especially in the aftermath of super typhoon Yagi.

Son also said that lower interest rates may attract foreign investments back to the stock market, potentially by the end of this year or early next year.

Other factors, such as the potential FTSE upgrade of the market status and Vietnam’s high-growth, export-driven economy, could further support increased foreign capital inflows.

In a lower interest rate environment, heavily leveraged sectors such as real estate, manufacturing and export stand to benefit. Lower rates translate to reduced borrowing costs, which, in turn, increase profit margins, he noted.

Furthermore, as interest rates decline, manufacturers have greater capacity to borrow to expand production and exports.

Son also believed that a reduction in interest rates could stimulate consumer demand in the U.S. and the rest of the world over the next three to six months, potentially propelling Vietnam’s export growth.

He forecast that real estate and banking stocks in particular would benefit from the Fed’s rate cuts, citing historical trends from around a decade ago.