The MSVN analysis team has reported that the VND has weakened against the USD by 2% in April 2024 (compared to 0.6%, 0.9%, and 0.7% in March, February, and January 2024, respectively). This shift is attributed to the Fed’s prolonged high-interest rate stance and rising domestic inflation, which has influenced the MSVN outlook, favoring the State Bank of Vietnam (SBV) to raise domestic interest rates to comprehensively address the interest rate differential with the US, the root cause of the VND‘s weakness.
While we believe that the government continues to prioritize economic recovery, we cannot rule out the possibility of the SBV increasing interest rates to stabilize the foreign exchange market and proactively curb inflation. The initial policy rate hike is likely to be modest, ranging from 25 to 50 basis points, as market interest rates are currently well below the ceiling rate (specifically, the 6-month term ceiling rate, which we consider the most important policy rate). Therefore, this increase primarily aims to signal the SBV‘s policy direction and allow commercial banks time to adjust their business plans accordingly,” the analysts explained.
Additionally, MSVN anticipates that the SBV will likely sell bills, USD, and gold at a faster and more aggressive pace to maintain the interbank interest rate at around 5% or higher, gradually shifting the liquidity impact from the interbank market to the economy.
In terms of market expectations, we foresee deposit interest rates (particularly for 6-month and 12-month tenors) increasing by 100 basis points in Q2 and Q3 2024, subsequently affecting lending rates,” the analysis team predicted.
However, MSVN also noted that while a 100-basis point rate hike would impact market sentiment, it would not be significant. This move would only bring rates back to COVID-era levels from the current record lows and would not hinder economic recovery.
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From MSVN‘s perspective, a 100 bps rate increase would only bring rates back to COVID-era levels and would not impede recovery.
Source: CEIC, Maybank IBG Research Forecast
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We observe that the real estate market is bottoming out, and domestic consumption of non-essential goods is on the rise. With strengthened confidence, we do not foresee the 100-basis point increase hindering domestic investment or consumption. We maintain our GDP growth forecast at 5.8% year-on-year and expect an acceleration in the second half of 2024,” stated the MSVN analysis team.
Moreover, the MSVN analysts assessed that corporate profits in Q1 2024 were optimistic, with a 12% year-on-year increase, outperforming the predicted 8% growth, led by the banking, retail, steel, and logistics sectors.
In light of the potential for rising interest rates, MSVN lowered its 2024 profit growth forecast by 1.5 percentage points to 15.2% year-on-year, acknowledging that recovery may face challenges in Q2 (+10% year-on-year) due to high comparative bases but is expected to accelerate in Q3 and Q4 2024 (+20% and +22% year-on-year, respectively), driven by the banking, retail, steel, information technology, and chemicals sectors.
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The challenges are only short-term, and MSVN anticipates a resumption of strong profit growth for businesses in the second half of 2024.
Source: Bloomberg, Maybank IBG Research Forecast
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Regarding the stock market, the analysis team maintained a positive outlook based on expectations of stronger profit growth in the second half of 2024, the potential for Vietnam’s market upgrade by FTSE to emerging market status (anticipated in March 2025), and reasonable market valuations.
In terms of valuations, MSVN noted that non-bank institutions are trading at a P/E of 20.4 times, slightly above the 3-year average, while banks remain at an attractive P/B of 1.6 times, close to the 3-year average.
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P/E and Corporate Profit Growth
Source: Maybank IBG Research. Data as of May 8, 2024
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As a result, we maintain our VN-Index target at 1,420 points, corresponding to a P/E of 14.2 times,” concluded the analysis team.
