Stock market liquidity forecast to pick up at end-Q2

Real estate investment cash flow remains limited, but money flowing into stocks is likely to be positive at the end of the second quarter, said Dinh The Hien, director of the Institute of Informatics Research & Applied Economics.

The economic situation in Q1 was positive. Production recovered, and companies began to recruit strongly again. A bright spot in the quarter was a clear recovery of exports. Export turnover in Q1 increased by 17%, bringing a trade surplus of $8 billion.

The consumer price index (CPI) in the quarter was 3.77% higher than the same period last year, raising concerns about inflation. Exchange rates also surged significantly in Q1, at more than 5%. This is the point at which the government must strike a balance between increasing the money supply and reducing inflation.

Dinh The Hien, director of the Institute of Informatics Research and Applied Economics, cited those macroeconomic highlights at a recent workshop themed "Reading the first quarter business results and Vietnam's economic prospects".

Overall, Q1 showed signs of progress, but Hien urged investors not to be overly hopeful because cash flow this year will remain limited. Cash flow for production, business, and consumption has stalled since the beginning of 2023.

International financial agencies such as the ADB and Fitch continue to estimate Vietnam's GDP this year at more than 6%, citing the need for public investment, exports, and attracting foreign direct investment (FDI). This will contribute to increased cash flow into manufacturing.

Hien stated that credit growth was negative in the first two months of the year, but improved in March and April. Bank cash flow has gone into enterprises, first for exports, then for consumption. "I predict that production and consumption cash flow will be significantly stronger in the third quarter," Hien said.

However, investment cash flow remains challenging. Real estate enterprises must deal with bond debt that will be due in 2024, worth approximately VND382,000 billion ($15 billion). This sum will be handled technically by real estate businesses and bondholders, resulting in stagnant investment cash flow. Weak investment has had little impact on the financial system, production, or business, but has hit the real estate sector.

Furthermore, investment flow will be hampered by bad debt among banks, which has reached a record high in the past five years, Hien noted. According to the expert, this is a result of years of build-up, beginning in 2020, with banks continuing to pour funds into the real estate market. When the market experiences challenges, bad debt arises. This occurred between 2010 and 2012, and is still happening today.

"Both the government and the State Bank of Vietnam are concentrating on resolving the problem, which is under control. However, this will not support robust cash flow for investment," Hien stated.

By the end of 2023, financial reports from real estate enterprises showed that revenue on inventory had dropped to its lowest level in five years, causing businesses to face capital constraints and impeding investment cash flow.

Another point is that the government's monetary supply has become more conservative. When providing funds for economic development, a certain level of inflation can be tolerated. Nonetheless, the government will prioritize macroeconomic stability, which means that it cannot choose between economic growth and inflation. Gold prices and exchange rates have risen dramatically, which has had a psychological influence on monetary supply.

Hien said that businesses continued to struggle to obtain bank financing in the first and second quarters, so spending has been limited and employment has not picked up, while the middle class still needs to pay off real estate debts.

In Q3, cash flow is likely to improve as exports gradually recover, resulting in job creation and consumption, public investment, new cash flows, and renewed consumer confidence, he noted.

"I believe that production cash flow will have good prospects in the third and fourth quarters. Real estate investment cash flow cannot satisfy investor expectations, but stock investment cash flow will be positive by the end of the second quarter.

"In particular, in May and June, we will see a flow of money returning to the stock market, demonstrating that the market is one step ahead in reflecting the economic picture," Hien added.