Experts said that although the insurance stocks group had a catalyst to increase prices in the past time from the story of rising interest rates, in fact this group did not benefit too much from that.
Previously, when the deposit interest rate race was at its peak, there were many views that insurance stocks would especially benefit. Because most of the assets of insurance businesses are mainly in bank deposits.
However, in the latest report of the US Bureau of Labor Statistics, headline inflation in December continued to decrease compared to the previous month, from 7.1% to 6.5%, becoming the 6th consecutive month that continued to see a decrease in inflation.
Besides, recent statements of Fed Chairman – Mr. Jerome Powell are also showing a less “hawkish” attitude. Therefore, many forecasts say that the motivation for this agency to aggressively raise interest rates to tackle inflation is not too much. Central banks around the world followed suit and gradually loosened monetary policies.
Domestically, deposit interest rates have also begun to cool down. In that context, many investors are interested in what is the new catalyst for the price increase of insurance stocks. Mr. Huynh Minh Tuan, founder of FIDT Investment Consulting Joint Stock Company, shared around this story.
How do you forecast interest rates in the coming time?
Mr. Huynh Minh Tuan: Maybe in the first half of 2023, the US Federal Reserve (FED) will reach the target interest rate of 5%. It is possible that the State Bank will also consider raising the nominal operating interest rate from 0.5-1% for the first half of 2023.
However, inflation in the US has also gradually decreased. Therefore, the Fed may not have much reason to apply strong measures to control inflation. The SBV’s action to increase the operating interest rate may not be necessary anymore, because the inflation pressure has decreased significantly, the real interest rate is still guaranteed.
In my opinion, continuing to raise interest rates may not be good in terms of operating and orienting the money market.
How do you assess the prospect of insurance stocks when interest rates drop?
Mr. Huynh Minh Tuan: In the past, insurance stocks had two price increase catalysts, which were divestment of state capital and increased deposit interest rates.
However, in reality, not all insurance companies allocate most of their assets to bank deposits. Even in the structure of deposits at banks, these companies also have a very clear segmentation by terms of 3 months, 6 months, 9 months, 12 months or more…
When interest rates rise, not all deposits of insurance companies benefit. For example, the interest rate race began to be the hottest in the period from November to December 2022, the amounts that businesses had allocated to the 12-month term before could not mature in time to be able to enter and enjoy the benefits.
Insurance companies also often choose 6-12 month term deposit a lot. Therefore, insurance companies do not really benefit from the increase in deposit rates. Besides, the margin of interest rate increase over the past time is not really high enough to make a difference in the business results of these enterprises.
It must also be added that since the post-pandemic reopening, the insurance industry’s compensation costs have also increased significantly. An increase in interest rates is sometimes not enough to cover these costs.
In recent years, the State’s policy has been an effort to equitize public-owned enterprises. The insurance industry is one of the pillars of the financial industry. This is also an industry with many enterprises with high state ownership. Therefore, the motivation for divestment of the public sector has always been one of the important issues of the insurance stocks group over time.
However, up to now, only a few businesses in this group still have stories of divestment. Insurance also accounts for a very small proportion of the market capitalization. Therefore, this group will be difficult for foreign investors to consider allocation and ETF baskets.
Mr. Huynh Minh Tuan: The stock market is usually 1-2 quarters ahead of the real economy.
As in the past period, the market’s high P/E valuation has reached 20 times (a rare level in recent years), and the macro numbers are very positive, that’s when investors should careful. At a time when economic forecasts are not as optimistic as now, investment opportunities have opened up again.
Many forecasts show that in 2-5 years, Vietnam will still maintain its position as a leading manufacturing center in the world, GDP growth rate is forecasted to continue at a high level, foreign investment inflows will continue to increase. Outside is still constantly coming, reforms are still making the market attractive.
At the same time, if looking back, VN-Index is currently giving a cheap valuation for the 3rd time in history after 2008 and 2020. This is the period when investors should not be pessimistic and should continue to invest. For investors who are losing money because of buying at the peak, they can consider raising capital for reinvestment.