A group of brokers and investors looking at the stock trading board. (Photo: vietnamnet.vn)The Governmentofficially issued a decree on interest rate support in loans of enterprises,co-operatives and business households on May 20.
Theapplication period is in 2020 and 2023, or the package can end sooner whenthe total loans with interest rate support reach around 40 trillion VND (1.7billion USD).
After themarket benchmark VN-Index plunged up to 24 percent from its peak in nearly twomonths, from 1,524 points to 1,150 points, the 2 percent interest ratesupport package's announcement is a lifesaver for the market on expectations ofthe return of cheap cash flows.
In fact, theindex had witnessed outstanding recoveries for two weeks with gains of nearly150 points. There are rising expectations about the cheap cash flows createdfrom the package worth 40 trillion VND, equivalent to a preferential credit ofup to 1 quadrillion VND.
However,experts said that this package only has indirect effects on the stock market.Therefore, investors shouldn't put high hope on a strong performance of themarket following the package issuance.
On thepositive side, Agribank Securities Corporation (Agriseco) said that thissupport package is expected to create a boost for enterprises to acceleratetheir recovery speed, contributing to the whole economic growth to reach theGovernment's target of 6-6.5 percent. But if companies spend theGovernment-supported capital for the wrong purpose, it can lead to unwantedresults for the economy.
Right afterthe supporting announcement, many were concerned that the interest ratepackage will cause the stock market to experience what had happened in2009.
Experts fromAgriseco said that, 13 years ago, Vietnam also carried out an interest ratesupport package from the State Bank of Vietnam (SBV) and applied for short,medium and long-term loans. The policy was a part of the fiscal andmonetary policies aimed to stimulate the economy that was affected by theglobal crisis.
The interestrate of the package was 4 percent a year in 2009 and was declined to 2 percenta year in 2010 for medium- and long-term loans.
After thepackage was applied, from 2009 to 2011, there were speculative cash flowsflocking into asset markets like gold, foreign currencies and real estate,which raised pressure on inflation since 2010. The consumer price index (CPI)soared 9.19 and 18.58 percent year-on-year in 2010 and 2011,respectively.
On the stockmarket, the VN-Index posted an impressive gain from 230 points to nearly 500points, equal to an increase of over 100 percent in 2009, with the firstappearance of the speculative cash flow on the stock market when theinterest rate for production and business activities gradually decreased.
However, themarket was on a bearish trend for the next two years. In 2011 only, theVN-Index and HNX-Index dropped over 25 percent and nearly 50 percent comparedto the beginning of the year, respectively, with average liquidity down up to60 percent.
At the moment,Agriseco expected that the interest rate support package will have positiveeffects but not too strong on the stock market as the market's size is nowmuch bigger than that of 2009. Specifically, the market capitalisation at theend of 2009 was 620 trillion VND, accounting for 45 percent of GDP, while thevalue at the end of 2021 reached nearly 5.8 quadrillion VND, hitting nearly 93 percentof GDP.
"We alsothink that the market's growth is driven by the improvement of business resultsand the inner strength of enterprises, instead of boosts from speculative cashflow," Agriseco said.
According tothe securities firm, there are two subjects benefiting from the policy,which are banks and businesses operating in supported sectors.
Businesssectors in the support list include aviation, tourism, agriculture, marineproduct and manufacturing industries. Leading companies of these industries aremore likely to meet the standards of the package because their resistance isbetter than the rest while facing the pandemic./.
VNA
