According to the latest report of Bao Viet Securities Company (BVSC), at the end of the first quarter of 2020, the VN-Index closed at 662.53, decreasing 298.46 points (equivalent to 31.06%) from the beginning of the year. The decrease in the first quarter is only second to the decrease in 2008 which was at 44.25%. However, compared to 2008, the macroeconomic indicators of Vietnam in 2020 are in a much more positive state. Specifically, credit growth in 2007 increased to over 50%.
However, right after that, in the first half of 2008, the Government had to implement a tight monetary policy to control inflation which once reached over 20%.
Regarding interest rates, in 2008, refinancing interest rate were up to 15% / year, base interest rates (to refer to the lending interest rate) were at 14% / year, actual mobilizing interest rates remained high, and two-year and five-year bonds yields reached over 20%.
The devaluation of the dong at that time was also very large (up to 9%). Meanwhile, in recent years, credit growth has always been controlled at around 14%, other macro indicators such as inflation, exchange rates, interest rates have been under control and at low levels.
Liquidity of the banking system is also abundant. In addition, compared to 2008, the Government's support solutions in 2020 such as loan reduction, debt rescheduling for businesses, tax breaks, land rent reduction, social security package, petrol and electricity price reduction packages, etc. are also being implemented in a timely and appropriate manner, helping to reduce the risk of macro instability.
Regarding the business performance of enterprises, businesses quickly regained growth momentum one year after the 2008 crisis. According to BVSC, statistics showed that after-tax profit of listed companies on both HSX and HOSE in 2008 decreased by 5% compared to 2007.
However, thanks to demand stimulus policies of the Government, profitability of many businesses increased sharply in both 2009 and 2010 with an increase of 57.2% and 92.5% compared to 2007 respectively. In 2008, the return on equity (ROE) of many industries recorded a decline, such as financial services sector (from 18% to 10%), real estate (from 14% to 10%), construction and construction materials (from 16% to 11 %), etc. Overall, the ROE decreased from 17.8% in 2007 to 14.5% in 2008, and increased to 19.4% in 2009.
Although the market size and the size of enterprises at the present time are very different from those in 2008, the adaptation of businesses, along with timely economic support policies of the Government are expected to help many businesses to overcome difficulties soon and recover in the near future.
Although the macro context in 2020 is in a more favorable position than that in 2008, this year's disease crisis will negatively impact more industries, and the impact level is also immediate and uniform. Currently, businesses are affected simultaneously in terms of both outputs and inputs, and the revenue breakdown is greatly affecting the cash flow.
Besides, the risk of increasing bad debts in the economy is also very noticeable. According to the preliminary assessment of the State Bank, the expected loan balance is about VND 2 million billion, accounting for about 23% of the whole system's loan balance, posing potentially risks for banking activities.
From 2012 to 2019, Vietnam's GDP per capita increased from USD 1,150 / person to USD 2,760 / person, an increase of about 2.5 times, but the rate of individual lending increased rapidly by 6.2 times. A sharp increase in loans to individuals, on the one hand, has contributed to increasing efficiency for banks, on the other hand, is very risky in the context of the current epidemic (if prolonged) when borrowers’ income decline. Apart from the increased risk of bad debt in the banking system, the risk from corporate bonds has also been much greater than before.
In 2017, corporate bond value was VND 115,000 billion, in 2018, it was VND 224,000 billion, and in 2019, it was VND 296,000 billion. As of early April 2020, the value of corporate bonds issued was VND 37,200 billion, in which real estate and construction continue to account for over 35% of the total issued value. With the sharp increase in issuing value in the last three years, corporate bond risk also exists, especially if the epidemic is prolonged, the required yield of corporate bonds will increase, putting more pressure on issuers.
In conclusion, the stability of the banking system, macroeconomic indicators, corporate health, and the attractiveness of stock market valuation are the basis to expect the stock market in 2020 to be soon stabilized and no longer decrease sharply as it did in the past.
However, it should be noted that although the macro context in 2020 is basically in a more positive state than in 2008, the scale of debt of the whole economy is at a much greater level, reflected by the facts that total outstanding loans to GDP has reached 130%, and the market size of corporate bonds has continuously increased. On that basis, if the epidemic persists, this could be one of the biggest risks for the economy as well as the stock market in 2020.
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