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Positive expectations

Although the world stock market has lost more than US$18,000 bln in 2022, the good news is that the market rarely falls for two consecutive years in a row. If this should happen, the second year will fall more sharply as compared to many previous years. According to the Stock Trader’s Almanac statistics, in the years the S&P 500 had five trading sessions at the beginning of the year, there is an 83 percent probability that the market will increase with an average rate of about 14 percent. In early 2023 the S&P 500 was up by 1.1 percent in the first five trading sessions.

A solid January is usually a good sign for the market and there are chances for a positive trend in the following months. Carson Group statistics also show that in cases where the S&P 500 gained more than 5 percent in January after a dismal year, the index climbed 30 percent on average that year. The S&P 500 gained 6.2 percent and Dow Jones gained 2.8 percent in January 2023.

Therefore, in the first four months of 2023, it shows a positive outlook when the US stock market continuously rallied and even increased for several consecutive weeks in March and April. The domestic stock market, although not positive since February, is still firmly above the 1,000-point mark. More importantly, the cash flow gradually returned when liquidity improved with the return of foreign investors, institutional investors, self-employed, and even individual investors who sold quite a lot in 2022.

Support factors

Although the US Federal Reserve (FED) has raised interest rates nine times in a row, the level has decreased since the last time by only 25 basis points, leading analysts to predict that the FED will soon stop raising interest rates. Although the FED still maintains interest rates at a high level, some other countries such as Australia, Canada, South Korea, and India have put a pause on the increase of interest rates after inflation showed signs of a decline.

Although inflation is still high, as in the US and Europe where it is two or three times higher, the inflation target has decreased quite a lot compared to a year ago, leading experts to believe that interest rates are also about to peak when inflation has passed its peak. This is positive news after months of efforts by central banks to tackle inflation.

Bloomberg forecasts that the FED has only one more rate hike this year, and the European Central Bank (ECB) has brought the Euro interest rate to near the top. This has opened up expectations for investors that the era of expensive money will soon end so that the era of cheap money can return. This is a favorable environment to promote the growth of financial markets.

According to CNBC, as businesses grapple with inflation and higher interest rates, many investors are bracing for a dismal earnings season. But data from the Bank of America shows that most businesses are doing fine so far. However, there are still many factors that make the growth of the market uncertain.

The International Monetary Fund (IMF) has just released a forecast for world economic growth of 3 percent in the next five years, down from 3.4 percent in 2022. This is a relatively low level, which will be a severe blow that will make it harder for low-income countries to recover, and hence poverty will increase even more. The IMF stated that this is the lowest medium-term growth forecast in more than 30 years, since 1990, and well below the 3.8 percent average two decades ago.

The IMF also forecasts that about 60 percent of countries will see their public debt-to-GDP ratio fall by the end of 2028. However, a significant number of major economies, including Brazil, China, and the US, are having very fast growth of public debt-to-GDP. According to Mr. Vitor Gaspar, Head of Fiscal Affairs at the IMF, global public debts grew by nearly 100 percent of GDP in 2020, before falling the most in 70 years in 2022. Even so, the public debt-GDP ratio remains at 8 percent higher than before the Covid pandemic, and instead of returning to normal this ratio will start to increase again this year and reach 99.6 percent by 2028, the last year in the IMF forecast framework.

Although the interest rate has slowed down, many organizations forecast that the interest rate will start to decline when global inflation shows signs of peaking, but there are almost no organizations or financial institutions that think that the interest rates will start to fall this year but do expect it to fall from 2024.

Scenario for 2023

There are still many obstacles and many mixed good and bad news at home and abroad. Interest rates in the world are still high and tight monetary policy is still being maintained.

However, the rate of an interest rate increase has started to slow down, the level of tightening has decreased when the world economy slowed down, and inflation stagnated in some areas, especially after the collapse of some banks such as Signature Bank, Silicon Valley Bank, or the Credit Suisse merger with Switzerland's largest bank, UBS signals that the world economy and international financial systems are showing warning signs. Therefore, central banks also began to loosen anti-inflation policies to avoid worse-case scenarios, and this has been supporting the financial market in general and the stock market in particular.

However, the most important factor for the market is cash flow which has continuously improved since the beginning of the year, when liquidity gradually increased and the return of participation of domestic, institutional, and foreign investors helped the liquidity to rise from low levels. Besides, in Vietnam, although the growth rate in the first quarter of 2023 was just over 3.3 percent and the economic hub of HCMC increased by only 0.7 percent, an all-time low level for many years, it is one of the rare economies that has begun to lower interest rates, along with other policy combos. This is helping the economy to recover faster than the rest of the world as well as helping attract money flow from all over the world into Vietnam.