According to a report released in January, SGI Capital believes that the central theme throughout 2024 globally will still be the reduction of interest rates to support the economy. The timing and extent of the rate cuts depend on the balance between inflation and unemployment. After a period of tightening for nearly 2 years, the room for monetary easing by the Fed is quite large as inflation has dropped significantly below the interest rate control cap.
Statistics over the past 60 years have shown that lowering interest rates has a very positive impact on the stock market in a soft landing scenario. Conversely, a recession and an outbreak of crisis will result in a decrease in stock prices as profits decline sharply.
Recent economic data suggests that a soft landing for the US economy is feasible. SGI Capital said it will continue to closely monitor early indicators to try to determine the possibility of a recession. Unemployment (currently at 3.7%) if it rises above 4.2% will be a very important signal. In the current context, this is unlikely to happen in the first half of 2024 and the Fed starting to cut interest rates in the second quarter will create a positive environment for the stock market.
However, other major economies globally such as the EU and especially China do not have such positive prospects. According to SGI Capital, what is happening in the real estate market in China may be repeated in Vietnam in the next 10-15 years when the population growth cycle ends.
In the near future, the decreasing demand and oversupply from China will continue to boost exports, exerting pressure on reducing prices and narrowing profit margins for construction material enterprises. Conversely, ongoing construction projects and infrastructure will have low and stable input costs.
The stock market in 2024 will be highly differentiated
Regarding the domestic situation, the macroeconomic situation in early 2024 continues with major trends including lower interest rates and stable exchange rates. The deposit and loan interest rates are starting to reach lower levels than the Covid 2021 trough. In which, never before has the VND deposit interest rate fallen rapidly and reached a low level as currently.
According to SGI Capital, this will certainly stimulate a money flow due to maturity to find investment opportunities in various asset channels. The rapid decline in lending rates also reactivates the demand for loans to serve production, business, and consumption. The general message that global banks have sent to clients this year is “Don’t Keep Cash” while being true to Vietnam.
After cautious stages at the end of last year, the stock market in 2024 has shown signs of recovery led by the banking group. The Q4 financial report showed that the overall banking sector is gradually moving past the most difficult period with the bottom zone of NIM, peak of NPLs, and provisioning established with State banks and healthy commercial banks.
“At historically low valuation levels like the end of 2023, it is not difficult for bank stocks to be revalued by the market for a more positive 2024 outlook“ – SGI Capital commented.
Although the general context is favorable for the stock market with low interest rates and the synchronous recovery of growth in many industries and sectors, the valuation of many stocks has approached or even exceeded the long-term average valuation. According to SGI Capital, when the VN-Index surpasses 1,200 points, it will return to near the historical average valuation zone with a P/E of more than 14x and P/B of 1.9 times.
The current valuation level reflects the expectations of growth recovery in many stocks. Investment efficiency will only come when these expectations become reality. Conversely, when valuation has increased, excessively optimistic and distorted expectations will become traps for investors this year. Therefore, the stock market in 2024 will be a highly differentiated environment.
