High interest rates could pressure margins as margin loans reach a record high

SGI Capital has released an update on the macro outlook and Vietnam’s stock market, highlighting that Vietnam recorded rapid Q1 2026 growth of 7.83% despite a weakening global environment. The firm said macroeconomic momentum remains intact even as credit growth stays slow and the trade deficit persists.

Inflation and monetary policy: pressure building

SGI Capital noted that core inflation and commodity inflation are showing signs of acceleration. At the same time, gasoline, diesel, and prices of basic goods have not yet fully reflected in March data.

On monetary policy, the State Bank of Vietnam (SBV) is facing a tougher stance than in 2025. The banking system remains heavily reliant on SBV liquidity support, while inflation has started to accelerate and has surpassed the policy rate for the first time since the 2008–2012 period.

Banking liquidity: funding strain and deposit-rate competition

In the first three months of 2026, the banking system continued to experience funding difficulties while loan demand remained high. SGI Capital said the net loan-to-deposit ratio, already above 110% since late 2025, rose by about 2 percentage points in Q1 2026. This has continued to pressure liquidity and contributed to a deposit-rate race in March, with 6–12 month rates at many joint-stock banks surpassing 8%–9% per year.

Why deposit mobilization remains slower than lending

SGI Capital cited several factors behind slower deposit mobilization in early 2026:

• The free exchange rate remains far above the interbank rate, reflecting demand to hold USD and gold against VND depreciation.
• Liquidity in the real estate market continues to weaken, reducing money turnover and the debt-servicing ability of real estate firms.
• Cash demand by households and small businesses appears not to have declined.

Government fuel-price measures and inflation pass-through

SGI Capital said the government’s budget measures to sharply reduce fuel prices are timely, helping ease inflationary pressure and sharing the cost burden for people and businesses. However, price spikes and shortages of input materials are affecting multiple sectors, including construction materials, chemicals, fertilizers, and animal feed.

The firm added that the pass-through effect of these costs, together with inflation expectations, is likely to push output prices higher in the coming months, continuing to pressure inflation throughout the year. Looking further ahead, purchasing power could weaken if decisive measures to curb prices and support consumption are not implemented.

Foreign flows and market liquidity dynamics

SGI Capital reported that foreign investors sold nearly VND 17.5 trillion net on HOSE in March and more than VND 32 trillion year-to-date. The outflow is described as robust and consistent with global trends, though it was somewhat surprising because it occurred just before Vietnam’s inclusion in FTSE’s EM index.

On domestic liquidity, SGI Capital said limited investment options have continued to channel funds into the stock market, helping absorb supply over the past four quarters. However, if interest rates rise sufficiently, domestic capital could rotate out in the coming months, pressuring margin lending, which the firm said is already at an all-time high.

By the end of Q1, margin remained near the peak level of 2025. SGI Capital also noted that deleveraging typically occurs on the stock market ahead of real estate and the wider economy due to liquidity dynamics.

Outlook: near-term headwinds, longer-term reform expectations

Overall, SGI Capital said the economy and Vietnam’s stock market face short-term challenges including reduced liquidity, rising inflation, tariff-related risks, and foreign fund outflows from emerging markets.

For the longer term, the firm believes institutional reforms, market upgrades, and a government with greater experience will help the country navigate uncertainties. It added that listed enterprises—described as the most dynamic and efficient parts of the economy—will likely adapt as they have in past cycles.

In the near term, SGI Capital said that in a rising-rate environment, cash will increasingly function as a defensive asset while investors wait for stock-market deleveraging, adequate valuation discounts, and truly attractive investment opportunities.