What are expectations for Vietnam's stock market from Fed rate cut?

The Federal Reserve's interest rate cut is expected to support Vietnam's effort to have its stock market status upgraded by FTSE Russell from "frontier" to "secondary emerging" and attract foreign capital after the strong net selling momentum in recent times.

The Fed on Wednesday decided to cut interest rates by a quarter percentage point and signaled that there will be two more this year. The decision puts the overnight funds rate in a range between 4%-4.25%.

Truong Dac Nguyen, investment director at Blue Horizon Joint Stock Company, analyzed that Fed interest rates have a direct impact on global borrowing costs and cash flow orientation in the financial market.

Over the past 20 years, there have been at least four major cycles in which stocks did not react as expected after Fed interest rate adjustments. Those were the periods of 2007-2008, 2010-2015, 2015-2018, and most recently 2022, according to Nguyen.

During the 2007-2008 and 2010-2015 periods, although the Fed lowered interest rates, the stock market declined or did not grow significantly. This reflected weak investor sentiment in a difficult economic context.

However, during the 2015-2018 period, the Fed raised interest rates, pushing the U.S. and Vietnamese stock markets into a rising cycle. The most recent time in 2022, the Fed raised interest rates sharply from 0.25% to more than 5%, helping the U.S. stock market increase sharply, but the Vietnamese market was held back.

Therefore, Nguyen assessed that interest rates are only part of the big picture, whether the market increases or not depends on the economic context when the policy is issued, the speed of interest rate adjustments, investor sentiment, expectations about business results, and macroeconomic prospects.

For the Vietnamese stock market, the past time has witnessed a strong net capital withdrawal from foreign investors. Although foreign capital flows do not affect the market trend, they affect investor sentiment.

The net selling of foreign investors is said to be due to exchange rate tensions when domestic demand for foreign currency increased and the trend of hoarding USD in the context of the State Bank of Vietnam (SBV) maintaining a loose monetary policy.

The SBV, the country's central bank, set the daily reference exchange rate at 25,198 VND/USD on September 17, an increase of VND856 compared to the beginning of the year, or 3.5%. The exchange rate has increased very rapidly in recent times and has only recently cooled down.

Yuanta Vietnam Securities analysts said that the foreign ownership ratio on the Vietnamese stock market has decreased to 12% (calculated based on the number of shares owned divided by the number of shares in circulation), mainly due to the difference in USD-VND interest rates, the global technology investment wave, the lack of new goods on the Vietnamese stock market, and the ceiling ownership level regulated for foreign investors.

Therefore, the Fed's interest rate reduction, along with the wave of IPOs of new goods and the development of financial products on the stock market, are the driving forces to attract foreign investors to return soon.

Vietnam's stock market is waiting for information on the market status upgrade assessment in early October 2025. According to Yuanta Vietnam Securities, based on FTSE Russell's criteria, the Vietnamese market has met all the nine criteria and is expected to have positive results soon in this review period.

As maket upgrades always attract the attention of many investors, Yuanta Vietnam Securities collected statistics on the cases of Kuwait, Saudi Arabia, and Romania.

The Kuwaiti stock market, after the upgrade announcement in September 2017, fell sharply in the first three months and then fluctuated sideways with a negative level of about 5-10% due to the Fed's interest rate hike and the impact of oil prices.

The Saudi Arabian stock market, after the announcement in March 2018, increased quite well in the first year, reaching a peak of 20%. The reasons were that, along with the FTSE upgrade, MSCI also announced a market status upgrade, plus the effect of the Aramco IPO. However, after that, the fluctuations were quite large, and the market finally decreased sharply by 20%, corresponding to the period of the oil crisis and Covid-19 2020.

The Romanian market, following the upgrade announcement in September 2019, fell sharply (Covid 2020 was the main shock), at times dropped 25%, but then recovered very well, up more than 30%.

Thus, Yuanta Vietnam Securities assessed that upgrades brought positive effects in the short term, but in the long term, the market performances depended on many macro factors (monetary policy, oil prices, Covid-19, politics) and internal factors.

The broker said it believes that at this stage, the Fed's interest rate reduction after a period of maintaining high interest rates could be a positive supporting factor for Vietnam's effort to have its market status upgraded.