Researching therelationship between macroeconomic factors such as the consumer price index, inflation,exchange rates, etc., and stock market indices in Vietnam are crucial when thegovern
Introduction
The stock market plays a crucial role in driving the economic progress of a nation. Therefore, numerous studies have been conducted to identify the factors influencing stock prices, aiming to provide a deeper insight into this market Among these factors, macroeconomic factors are considered to significantly contribute to the volatility of stock prices This assertion is strongly supported by research conducted by reputable scholars such as Rahman, Sidek, & Tafri (2009); Narayan, K.P & Narayan, S (2010); Kiều & Điệp (2013); Hoàng (2017); González, Nave, and Rubio (2018).
If stock market indices can accurately reflect fundamental macroeconomic factors, they could become a leading indicator of future economic conditions Researching the relationship between macroeconomic factors such as the consumer price index, inflation, exchange rates, etc., and stock market indices in Vietnam are crucial when the government considers policy decisions for the nation This helps investors make more informed decisions regarding stock investments.
The study examined the impact of six macroeconomic factors on the Vietnamese stock market through a regression model, using data collected from January 2015 to November
2023 The results of the study not only provide a basis for investors to make rational decisions but also further strengthen empirical evidence for policymakers to devise solutions for developing the Vietnamese stock market The next part of the article will present the theoretical basis and the macroeconomic factors affecting the stock market,followed by the methodology, model, and research data, and the results of model testing,combined with commentary and conclusions from the study.
Literature Review
Stock price index
VN-Index is a Vietnam stock market index calculated based on market capitalization and price fluctuations of stock codes listed on HOSE The study used the VN-index as a representative factor for the stock market to study macro factors affecting the stock market because the VN-index represents the growth situation of the economy VN-Index is calculated based on the total current market value divided by capitalization value (Yến,
2013) Meanwhile, the capitalization value at the base time is unchanged, remaining at
100 Therefore, if the VN-Index increases, it means the total capitalization value of the stock market at that time comparison also increased That shows that the size of the stock market as well as the scale of the economy is increasing, and vice versa In addition, theVN-index is an index showing the price fluctuations of all stocks listed on the Ho ChiMinh City stock exchange and stock prices are influenced by the laws of supply and demand in the market, so it is also a part of expressing investors' attitudes towards the current state of the economy When the economy develops, investors will have expectations about future growth, stocks will be vibrant, and the stock market will increase (Qamruzzaman & Wei, 2018) When the economy is in crisis, investors will have pessimism and fear when trading stocks and the stock market will decline (Horvath, &Poldauf, 2012) Researching the impacts of macro factors affecting the VN-index can provide a comprehensive picture of Vietnam's economic situation that is affected and fluctuates in many dimensions from which policymakers can understand As investors,you can make more objective comments, analysis, and assessments in the future.
Macro factors affecting the stock market
Interest is a cost incurred when an individual or business borrows money from a lender It is usually calculated based on a percentage of the loan amount and is usually paid off along with the principal amount over a certain period of time (Malkiel, 2015) It has an important impact on the overall growth and development of the economy Afolabi Emmanuel Olowookere & Taiwo Phebe Fadiran (2016) pointed out that an increase in interest rates will affect the demand for stocks and therefore affects stock prices in the market When interest rates decrease, the impact on the stock market is positive Reducing capital prices will help companies easily mobilize capital to implement investment projects, while reducing costs for companies using large financial leverage This improves the company's profits and increases the stock price In addition, when interest rates decrease, people with money tend to choose other investment channels with higher rates of return and this causes cash flow to shift to other investment channels, including stock investment channels On the contrary, when interest rates increase, the effect on overall economic activity is negative (Pasinetti, 2005) When interest rates increase, loan interest rates for customers also increase, reducing consumer spending and shopping needs This affects production and business activities and profits of companies, making securities less attractive in the market Furthermore, rising interest rates make fixed income securities a less attractive option, reducing liquidity into stocks.
Many studies have also been shown that the relationship between interest rates and stock prices is often inverses For instance, the studies of Adam & Tweneboah (2008), Alam & Uddin (2009), Aurangzeb (2012), Nguyệt & Thảo (2013).
Inflation is a term used to describe the persistent increase in the general price level of goods and services over time and the loss of value of a currency (Labonte & Makinen,
2008) When the general price level rises, a unit of currency buys fewer goods and services than before, so inflation reflects a decline in purchasing power per unit of currency In general, rising inflation is often considered a negative signal for the stock market because when inflationary pressure increases, the central bank is forced to tighten monetary policy and increase deposit interest rates (Yellen, 2015) At that time, cash flow from the financial market, especially the stock market, will move to other channels such as savings deposits Furthermore, inflation can indirectly affect the stock market through the commodity market (De Gregorio, 2012) When inflation increases, businesses' input costs also increase, affecting business profits If production costs increase and push up the selling price of goods, demand for goods decreases and revenue decreases This makes the company's shares less attractive to investors Studies by Gan, Lee & Zhang (2006); Jiranyakul (2009); Geetha, Mohan, Chandran & Chong (2011); Eita (2012); Nori Mousa,
Al Safi, Hasoneh & Mohammad (2012) have been illustrated that inflation has a negative relationship with stock prices.
However, increased inflation does not necessarily reduce stock prices because the impact of inflation on the stock market depends on the inflation level in the context of economic growth as well as the prospect of maintaining such an inflation level Moderate inflation can be a good thing for the economy, providing a driving force for businesses to boost production and business in an environment of rising product prices (Girdzijauskas, Streimikiene, Griesiene, Mikalauskiene & Kyriakopoulos, 2022) Inflation occurring in the context of economic growth is usually a good thing, on the contrary when the economy falls into recession Adam & Tweneboah (2008) and Giri & Joshi (2017) pointed out a positive correlation between inflation and stock market price index This result shows that resources are effectively allocated by the market by adjusting upward according to the general increase in prices in the long run.
Exchange rates determine the value of one currency in relation to another Changes in exchange rates impact different industries based on their dependence on foreign currency revenue and domestic raw materials A rise in exchange rates favors businesses with foreign currency revenue and domestic production, increasing their revenue and stock prices Conversely, industries reliant on imported raw materials or exporting goods may be negatively affected by unfavorable exchange rates.
On the contrary, increasing exchange rates will negatively affect businesses that have foreign debt or have to import main raw materials from abroad and mainly serve the domestic market because companies have to import raw materials at high costs This affects the business situation by increasing costs and influencing revenue, thereby affecting the stock prices of companies Furthermore, exchange rates can affect the stock market's rate of return through its impact on the flow of indirect investment capital into countries' stock markets (Hau & Rey, 2006) Therefore, the direction of the influence of exchange rates on the stock market depends on the characteristics of each economy.
The relationship between exchange rates and stock returns has been studied by many researchers Research by Gan, Lee & Zhang (2006); Aurangzeb (2012); Lộc (2014); Giri
& Joshi (2017); Bala Sani & Hassan (2018) has been shown that that the relationship between exchange rates and stock prices is positive However, Liu & Shrestha (2008) found a negative relationship between stock prices and exchange rates Long & Trang
(2008), Nguyệt & Thảo (2013), Ouma & Muriu (2014) also pointed out similar results.
Oil is an important source of energy and an essential, irreplaceable transportation fuel in many industries The relationship between oil prices and stock prices can be positive or negative Oil prices can directly or indirectly affect stock market volatility (Kang, Ratti & Yoon, 2015) Fluctuations in oil prices create uncertainty in the financial market which can directly impact the decline in stock prices The indirect impact of oil prices is described through a decrease in production output and an increase in the inflation rate when oil prices increase This affects macroeconomic variables and thereby affects the stock market Jones, Leiby & Paik (2004) found evidence that high oil prices will increase the economy's production costs, leading to a decrease in production output and a decrease in expected returns on the stock market In addition, a number of studies by Nandha &Faff (2008), Cunado & Perez (2014), Giri & Joshi (2017) have shown a negative relationship between oil price fluctuations and stock prices Smyth & Narayan (2018) pointed out that rising oil prices can increase expected inflation and interest rates, thereby reducing profits from future dividend streams.
On the other hand, according to Hamilton (2008), higher oil prices can reflect better business performance while rising oil prices reflect a growing market and high level of business confidence Research by Nguyệt & Thảo (2013), Jain & Biswal (2016), and Thủy
(2018) also found a positive relationship between stock prices and world oil prices.
Gold is a means of storing value Unlike other assets, gold has the potential to be highly liquid Fluctuations in gold prices affect most economic sectors, including the stock market (O'Connor, Lucey, Batten & Baur, 2015) It can be said that gold prices and the stock market often move in opposite directions to each other When the stock market drops, the price of gold will increase, but this is not a direct impact, meaning the stock market does not directly cause gold prices to increase but rather due to shifting market demand (Ciner, Gurdgiev & Lucey, 2013) This is the same in most economies but differs in the level of impact Specifically, when the stock market declines, gold bar and gold ETF trading activities on the world market become more active, and gold prices will therefore increase Research by Garefalakis, Dimitras, Koemtzopoulos & Spinthiropoulos (2011); Lộc (2014); Akbar, Iqbal & Noor (2019) have been shown that there is a negative correlation between gold prices and stock prices.
However, gold prices do not completely reflect the stock market (Caliskan & Najand,
2016) There are still cases where gold prices and the stock market do not fluctuate in opposite directions Gold and stocks are both components of the financial market, so they also have a significant impact on this market When seeing a good financial market, stock investors can invest more gold and vice versa, leading to fluctuations in the same direction In Vietnam, research by Bình & Hà (2012) on the Vietnamese stock market concluded: World gold prices have a positive impact on the stock price index.
FDI (Foreign Direct Investment) is direct investment from abroad into a specific country,through purchasing shares in local businesses or establishing new businesses (Duce &
The relationship between the stock market and foreign direct investment (FDI) capital is multifaceted, with both influencing each other (Desai, Foley & Hines, 2005) Foreign investment can enhance stock market liquidity and development by increasing trading activity Conversely, substantial FDI capital attracts positive investor perceptions about business potential, driving stock market growth Aurangzeb (2012) found a positive correlation between stock prices and direct FDI Despite extensive research on FDI's impact on stock markets globally, Vietnam-specific studies remain limited, highlighting a significant research gap.
Hypothesis
Based on the theoretical basis given, the study has developed the following hypotheses:
H1:There is a significant impact of interest rate on stock prices
H2:There is a significant impact of inflation rate on stock prices
H3:There is a significant impact of exchange rate on stock prices
H4:There is a significant impact of Oil prices on stock prices
H5:There is a significant impact of Gold prices on stock prices
H6:There is a significant impact of FDI on stock prices
Data & Methodology
Data sources
A research study aims to examine the impact of macroeconomic factors on the stock market in Vietnam, with the selected macroeconomic factors being Interest rate, Inflation rate, Exchange rate, Oil price, Gold price, and Foreign Direct Investment (FDI) The VN- Index data is used to represent the situation of the stock market in Vietnam The VN- Index data is collected on the last day of each month during the period from January 2015 to November 2023, obtained from the Ho Chi Minh City Stock Exchange (HOSE), totaling 105 observations Monthly inflation rate is measured through the Consumer Price Index (CPI) The indicators of Interest rate, exchange rate, and FDI are sourced from the International Monetary Fund (IMF) database and TradingEconomics.com Brent crude oil price data is sourced from Fred Economy and represents the global oil price as Brent is commonly used as a benchmark for crude oil from Africa, Europe, and the Middle East - accounting for about two-thirds of the world's crude oil production International gold price data is obtained through The World Gold Council All data is collected on a monthly basis, with data collection occurring on the last day of each month during the period from January 2015 to November 2023.
Exchange rate EXC VND/ USD
Oil price OIL USD/barrel
Gold price GOL USD/oz
Methodology
This study uses a quantitative analysis method with a monthly time series of 105 observations from 01/2015 to 11/2023 Linear regression analysis is used to analyze the effect of the independent variables on the dependent variable simultaneously according to reference from Basic Economics, McGraw-Hill (Mandel 2012) This analysis is intended to determine whether there is an influence of independent variables interest rate, inflation, exchange rates, oil price, gold prices and FDI on the dependent variable VN- Index.
The model of multiple linear regression equation is as follows:
VNI = β0 +β1*INT + β2*INF+ β3*EXC + β4*OIL + β5*GOL +β6* FDI + ɛi
▪ VNI stands for the VN-Index, representing the fluctuations of the stock market.
▪ INT, INF, EXC, OIL, GOL, FDI are dependent variables which are (INT) Interest rate, (INF) Inflation rate, (EXC)Exchange rate,(OIL) Oil price, (GOL) Gold price, (FDI) Foreign Direct Investment respectively.
▪ β1, β2, β3, β4, β5, β6 are coefficients representing the influence of INT, INF, EXC, OIL, GOL, FDI respectively, on the dependent variable.
▪ Ɛi is is the error variable.
Results
Descriptive statistics
The statistical analysis employed in this research aims to provide a comprehensive quantitative summary of the data The primary objective is to simplify understanding of the dataset by condensing its significant attributes This methodology encompasses a range of measures focusing on central tendencies, such as mean values, as well as measures of variability, including range, variance, and standard deviation, which collectively illustrate the distribution pattern of observations Below are the descriptive statistics results of the independent variables studied in the research:
The provided table illustrates the fluctuation of various economic indicators over a span of nine years from 2015 to 2023 The interest rates range between 4% and 6.5%, with an approximate average of 5.5% and a standard deviation of 1% Inflation rates, measured byCPI, vary from 87.71 to 113.66, with an average around 99.7 and a relatively high standard deviation of 56.6 The exchange rate, hovering between 21,485 VND/USD and24,089 VND/USD, demonstrates minimal growth over the nine-year period, with an average rate approximately at 22,803 VND/USD Meanwhile, the oil prices have experienced significant fluctuations, particularly in recent years, primarily due to geopolitical tensions and the impact of the Covid pandemic This period has witnessed sharp shifts in oil prices, ranging from a low of 18.38 USD/barrel to a high of 122.71USD/barrel The average global gold price stands at 1517.7 USD/oz, fluctuating within a range of 295 USD/oz Lastly, Foreign Direct Investment (FDI) into Vietnam fluctuates from 0.5 billion USD to 2.8 billion USD.
Correlation analysis
The Pearson coefficient is used in the study to assess the level of linear correlation between variables The value of the Pearson coefficient ranges from -1 to 1, with -1 indicating a perfect negative correlation, 0 indicating no correlation, and 1 indicating a perfect positive correlation (Schober, Boer & Schwarte, 2018).
However, solely using the Pearson coefficient is insufficient to draw conclusions about the statistical significance of the correlation Therefore, to determine whether the correlation is statistically significant, hypothesis testing needs to be performed with a significance level of 0.05 (Andy Field, 2009) The result of the test will determine whether the correlation between two variables is statistically significant If the "sig" value (meaning the p-value) obtained from the test is less than 0.05, we have enough evidence to conclude that there is a linear correlation between the two variables Conversely, if the
"sig" value is greater than 0.05, we do not have enough evidence to conclude that there is a linear correlation between the two variables Therefore, in the research, both methods,namely the Pearson coefficient and statistical hypothesis testing, are used to help us better understand the relationship between variables in the study.
The analysis results indicate that the Sig (2-tailed) values between the six independent variables, including INT, INF, EXC, OIL, GOL, FDI, and the dependent variable VNI, all show statistical significance smaller than 0.05 This indicates that there is a significant linear relationship between these independent variables and the dependent variable VNI.
In the Pearson correlation analysis, the variable INT has shown a strong negative correlation with VNI (-0.739), meaning that as the value of INT increases, the value ofVNI decreases On the other hand, variables INF, EXC, and OIL have shown strong positive relationships with VNI, indicating that their increases are accompanied by an increase in VNI This suggests that factors such as inflation, industrial production, and crude oil prices positively influence the stock market index However, the FDI variable shows a weaker correlation with VNI, indicating that the influence of foreign direct investment on the stock market may be uneven or inconsistent Nevertheless, to delve further, regression equations will be utilized to clarify this relationship and determine the specific impact of the independent variables on the dependent variable VNI.
Regression results
The Model Summary table showing adjusted R Square values of 0.811 and 0.799 for adjusted R square indicates that the independent variables included in the regression analysis account for 79.9% of the variance in the dependent variable, with the remaining 21.1% attributed to variables outside the model and random errors.
When the Durbin-Watson coefficient = 0.506 < 1, this often indicates the presence of positive autocorrelation in the data.
The Anova test is used to carefully examine the adequacy of the regression model used. The result shows that the F-test value = 69.921, and the p-value = 0.000 < 0.05 Therefore, the regression model is appropriate for the collected data sample, and the factors included are statistically significant at the 5% significance level.
The variable Inflation rate (CPI) with a Sig value of 0.221 > 0.05 indicates that this variable is not significant in the regression model, or in other words, it does not have an impact on the dependent variable, stock prices Similarly, the variables FDI and Gold price also do not affect stock prices as their t-test Sig values are 0.548 and 0.384 > 0.05, respectively.
The remaining variables including Interest rate, Exchange rate, and Oil price all have t- test Sig values smaller than 0.05, indicating statistical significance Therefore, these variables all influence the dependent variable, stock prices The regression coefficients ofExchange rate and Oil price are 0.265 and 7.229 respectively, both positive, indicating that these independent variables have a positive impact on the dependent variable Oil price has a stronger impact compared to Exchange rate The regression coefficient ofInterest rate is -146.923, indicating a negative impact on stock prices.
However, the fact that the VIF coefficient of the exchange rate is greater than 10 suggests the presence of multicollinearity in the model This implies that the exchange rate does not contribute independently enough to explain the variation in the dependent variable. Based on the data obtained, we can create a table of hypothesis testing results as follows.
From the regression coefficients in the Coefficients table, the regression equation takes the following form:
▪ The intercept coefficient is -2831.459, representing the predicted value of VNI when all independent variables are equal to 0.
▪ The coefficient of the variable INT is -146.923, meaning that when the value of the Interest rate variable increases by 1%, the value of the dependent variable VN- Index will decrease by approximately 146.923 points, holding other independent variables constant.
▪ The coefficient of the variable OIL is 7.229, indicating that when the value of theOil price variable increases by 1 unit, the value of the dependent variable VN-Index will increase by approximately 7.229 points, holding other independent variables constant.
Discussions
Interest rate is one of the most closely monitored factors in the economy due to its significant impact on various aspects of the financial system Interest rate fluctuations reflect the supply-demand situation for borrowing capital and can influence investment and financial decisions of businesses and individuals.
Analysis suggests an inverse correlation between interest rates and the VN-Index, indicating that a 1% rise in interest rates could result in a decline of approximately 146.923 points in the VN-Index, assuming other factors remain unchanged This aligns with previous research by Adam & Tweneboah (2008), Alam & Uddin (2009), Aurangzeb (2012), and Nguyệt & Thảo (2013), who have consistently observed an inverse relationship between interest rates and stock prices.
From these results, it can be concluded that an increase in interest rates is typically accompanied by a decrease in the VN-Index and stock prices This provides important information for investors in making investment decisions, as they can rely on interest rate data to assess and predict market fluctuations.
In this study, the results show a notable difference in the relationship between oil prices and the VN-Index Contrary to previous studies by Nandha & Faff (2008), and Cunado & Perez (2014), Giri & Joshi (2017) our results indicate a positive correlation between oil prices and the VN-Index.
In fact, it is observed that when oil prices increase, the VN-Index also tends to rise This can be understood as the growth in oil prices may generate positive signals for theVietnamese stock market This can be explained by noting that an increase in oil prices may generate substantial profits for oil and related companies, leading to growth and optimism in their business prospects Therefore, investors may tend to buy stocks of these companies, leading to an increase in the VN-Index.
However, it is important to note that these results may depend on various factors and should be carefully considered when making investment decisions Additionally, this raises questions about the variability of the relationship between oil prices and the stock market over time, especially in the context of global market fluctuations and other financial factors.
Conclusion
The primary objective of this study was to investigate the influence of macroeconomic factors on stock prices in Vietnam It has become evident that these factors can significantly impact the overall performance of the stock market in the country Among the six macroeconomic factors considered in this study: Interest rate, Inflation rate, Exchange rate, Oil price, Gold price, and FDI; it was found that only Interest rate and Oil price have an impact on the VN-Index.
Particularly, Interest rate exhibited the strongest and inverse influence on the VN-Index, aligning with previous research findings Additionally, Oil price showed a positive correlation with the VN-Index, contrary to the results of earlier studies conducted by, Nandha & Faff (2008), Cunado & Perez (2014), and Giri & Joshi (2017) However, due to the relatively small sample size and the use of the VN-Index as a proxy for stock prices, the findings may not fully represent the entire stock market, potentially influencing the results.
The identified limitations in this study offer valuable opportunities for future research By addressing and exploring these constraints, subsequent investigations can enhance understanding of the intricate relationship between macroeconomic factors and stock prices within the Vietnamese market.
Abbreviation
HOSE: Ho Chi Minh Stock Exchange