Bank rate cuts boost stock market sentiment, but sustainable gains depend on corporate profits and macro outlook.

Although the easing of interest rates is cooling, the stock market remains unlikely to sustain gains without a foundation from corporate profits and confidence in the economy's outlook.

Rate cuts lift near-term sentiment

Many commercial banks have moved to cut both deposit and lending rates, reversing the long rise since late 2025. The shift has drawn market attention as investors look for signals that could support capital flows.

On April 13, the first session of the week, the VN-Index improved after a morning lull and turned higher. The benchmark closed at 1,758 points. Liquidity stayed high, with turnover on the HoSE exchange exceeding VND 22.5 trillion.

How lower rates can support stocks

Tran Quoc Toan, Director of Branch 2 of Mirae Asset Securities (MAS), said rate cuts can act as a direct “tonic” for the stock market.

• Attraction for idle capital: When deposit rates become less attractive after recent mobilization rounds, idle money from households and institutions tends to shift toward higher-yield assets, with stocks often becoming a top choice.
• Improved profit margins: Cooling borrowing costs reduces financing expenses, supporting companies’ after-tax profits. This can also reduce market P/E valuations, making stocks relatively cheaper.

Nguyen Trong Dinh Tam, Director of Personal Investment Advisory at Thien Viet Securities (TVS), highlighted two main effects.

• Short-term psychology: Rate cuts can benefit rate-sensitive segments such as residential real estate, construction, and securities.
• Capital returning to equities: Some capital may return to the stock market, particularly when many stocks’ price-to-earnings valuations have become more attractive relative to the five-year average following recent volatility.

Limits and conditions for a sustained uptrend

Tam cautioned that the current downward trend in rates may be only short-term. A prolonged low-rate cycle depends on macro developments and banks’ funding needs to support lending growth, in a context where the economy targets about 10% GDP growth in 2026.

He also noted that the conflict in the Middle East remains a key factor affecting the stock market outlook, while near-term movement is supported by expectations of cooler rates.

Low rates are necessary, not sufficient

According to the analysis presented, low interest rates are a “necessary condition” but not a decisive factor for a long upward trend. In past periods, even when rates fell, the market often recovered briefly before correcting again—suggesting that loose monetary policy can activate capital but may not sustain confidence without improving fundamentals.

The article emphasized that rate cuts influence asset prices indirectly through expectations and capital flows. Equity valuations can widen when discount rates fall, but if profits do not improve, elevated valuations become difficult to sustain. It also noted that rate cuts can coincide with weaker economic conditions—meaning the cuts may reflect concerns about consumer demand, investment, and production rather than purely positive news.

Investor psychology can also matter: initial excitement may fade if there is no clear growth narrative, potentially leading to short-term speculative flows and subsequent corrections.

What the market needs to hold gains

Tran Quoc Toan stressed that rates are a necessary condition, while the “sufficient condition” for a durable rally is internal growth of enterprises alongside a macro environment that supports it.

Overall, the article pointed to corporate earnings growth as the most fundamental foundation for long-run stock prices. It also highlighted the role of macro stability—such as reasonable GDP growth, controlled inflation, stable exchange rates, and consistent policy—in reducing systemic risk and encouraging long-term capital to return to the market.

Finally, confidence in the economy’s outlook is described as critical. Investors’ willingness to hold assets longer and accept higher valuations depends on whether they believe the economy is entering a new growth cycle; if prospects remain uncertain, capital inflows may stay cautious even when rates are low.