SGI Capital: Domestic liquidity increasingly sensitive to interest rates, with a defensive stance awaiting opportunities

SGI Capital said domestic liquidity remains the main engine for markets, but it is increasingly sensitive to interest-rate movements—particularly as margin debt stays near the 2025 peak. The firm added that defensive money is moving out of risk assets.

Supply disruptions and rates raise inflation and growth risks

SGI Capital assessed that a longer-lasting supply-disruption scenario is becoming more evident and has started to weigh on the global economy. It warned that if a comprehensive deal is not reached soon, Brent crude trading above $90 could negatively affect inflation and growth prospects.

In parallel, the bond market is signaling higher rates amid inflation pressures from disrupted supply. SGI Capital noted that when inflation rises again while unemployment remains low, the Fed and other central banks may be more cautious about rate cuts, drawing lessons from 2022.

AI data-center spending could slow S&P 500 profit growth

SGI Capital also flagged that about half of data-center investment to support AI this year is expected to pause due to soaring costs. The firm said this could slow profit growth of the S&P 500 in 2026.

Vietnam: growth holds, but liquidity strains build

In Vietnam, SGI Capital cited Q1 2026 GDP growth of 7.83%. However, it said macro pressures are increasingly visible, including signs of accelerating inflation and liquidity strains in the banking system.

The firm pointed to the loan-to-deposit ratio (LDR) surpassing 110% from late 2025 and continuing to rise in Q1. With funding lagging credit growth, it said interest rates are moving higher, and many banks have lifted term deposit rates above 8–9% per year.

SGI Capital said that once rates rise high enough, the market will demand higher returns to keep money in the system, prolonging funding costs for the economy.

Equities: foreign outflows and higher funding needs

On the stock market, SGI Capital reported that foreign investors were net sellers of about VND 17,500 billion on HOSE in March and more than VND 32,000 billion year-to-date. It described the outflow as sizable, consistent with global trends, and noted it occurred just before Vietnam’s inclusion in FTSE EM indices.

The firm also highlighted liquidity pressure ahead in Q2, citing a large upcoming issuance to existing shareholders, maturities, and demand for real estate bond issuances. It said yields for these issuances are already around 18%, and higher funding costs could add pressure to market liquidity.

Outlook: near-term liquidity tightening and rate sensitivity

SGI Capital maintained that domestic capital is still the main driver, but warned of growing sensitivity to rate movements—especially with margin debt near the 2025 peak. It said that if rates rise, domestic funds could reverse, triggering deleveraging, which it described as an effect often seen early in equity markets due to liquidity.

Overall, SGI Capital said the economy and stock market face near-term challenges including liquidity tightening, inflation rising, tariff risks, and foreign outflows from emerging markets. It added that in the near term, as rates trend higher, cash is likely to increase as a defensive channel while investors wait for deleveraging, sufficient discounting, and more attractive opportunities.

Longer-term view: reforms and corporate adaptation

For the longer run, SGI Capital said reforms, market upgrading, and a new government with experienced management could help navigate uncertainties. It added that publicly listed companies—described as dynamic and efficient representatives of the economy—are expected to adapt and overcome challenges.