How do you assess the financial market outlook for the second half of the year?

The financial market in the second half of the year is focusing on the possibility of interest rate cuts by major central banks. The US Fed is expected to cut three times between September and December, the European Central Bank will likely cut around the same time, and the Bank of England is expected to cut interest rates in August and November.

Trinh Ha, a financial market analyst from Exness Investment Bank

On the contrary, the Bank of Japan is expected to raise interest rates and cut a bond buying programme to $3 billion from $6 billion, reducing the money supply.

This shows that major markets such as the US, UK, and Europe are quite confident about the deflationary trend. The story here is whether the pace of interest rate cuts is appropriate or not because if they are cut early, inflation will rise again, but if they are slow, it will cause an economic recession.

There have been some signs of a possible recession in the US economy, with the inverted government bond yield curve combined with the leading economic indicator hovering around the level indicating a possible recession. In addition, the probability of the US economy falling into recession is estimated at 30 per cent.

However, the financial market is quite strong and this is different from previous times. This is partly because 30-year fixed loans maintained low interest rates from 2014 to 2020, meaning individuals and businesses were less affected despite high bond yields. The real estate market has grown slowly, unlike the previous crisis period.

In particular, the stock market has grown strongly and focused mainly on the AI fever and in fact, AI has also brought good cash flow to companies with input products serving this technology. In addition, this technology has also been deeply penetrating into economic life in recent times and helping to increase productivity many times over.

With the possibility of an upcoming interest rate cut, the financial market will welcome a new cycle of the economy, gradually moving into the recovery.

With many fluctuations taking place including in geopolitics, which investment channels are attracting individuals today?

The world’s economies are gradually moving into the recovery phase. Capital flows are expected to flow back to emerging markets, high-risk bonds, and high-beta assets after major central banks cut interest rates.

The recovery phase is also a phase that focuses on efficiency rather than expansion due to uncertainty about the future. Therefore, technology stocks are favoured and may continue to be watched until there are signs of slowing profit growth. In addition, small-cap stocks or emerging markets will also be able to start a new growth cycle after starting to bottom out with the world economy in this recovery phase.

Bonds, especially short-term bonds with high yields, will still be in the spotlight even when the Fed cuts interest rates.

Gold and some rare metals are still an attractive channel when central banks, especially the Fed, cut interest rates. This will cause USD to decrease and the opportunity cost of holding gold will gradually decrease, promoting the attractiveness of gold. In addition, if there is a risk of crisis, gold is also a safe haven.

Moreover, the strong purchasing power of central banks, especially the in BRICS bloc, will reduce dependence on USD and will also continue to support gold prices.

Vietnam’s asset management market has a lot of potential, but still trails behind many markets in the region. Could you share some experiences from developed markets, or offer advice?

In pioneering financial markets such as Switzerland, the United Kingdom, the United States, Hong Kong, and Singapore, the proportion of institutional investors and fund management companies accounts for up to 80 per cent, while in Vietnam, the majority are individual investors accounting for nearly 90 per cent.

For more than a century, developed markets have established tight financial institutions to promote the dynamic and strong development of the fund management industry today, such as preferential tax policies. For example in Singapore or Hong Kong, the fund management industry is given tax incentives, exempted from tax income from capital transfer activities, and investors participating in entrusting funds are exempted from personal income tax on income from that fund.

Since then, investment product and service providers have diversified their asset portfolios, and asset management software development technologies have become more advanced and easier to use.

The barriers that Vietnam still faces are that fund management companies must deduct more than 5 per cent of personal income tax before paying profits to investors, and an additional 20 per cent tax rate for personal income. This creates barriers as well as little support from the state, thereby making the fund management industry less attractive.

There are some experiences that can be shared from effective asset managers. Firstly, and most importantly, is to improve financial literacy. One of the major challenges of the fund management industry with diversified financial products in Vietnam is the lack of understanding or very limited knowledge of investors. Many still do not understand the risks and benefits of investing, or suffer from fear of missing out, which can lead to wrong decisions.

The second aspect is a portfolio diversification strategy. Even if you are new to investing, you may have heard the adage of not putting all your eggs in one basket. This is the main idea behind portfolio diversification, a tried and tested strategy that aims to minimise risk and increase overall returns over the long term.

Diversification may seem simple enough, simply spreading your investments across a variety of asset classes, but there are some important principles that every investor should know.