Vietnam financial markets profile 2008-09

From MarketsWiki
Revision as of 12:19, 3 April 2009 by RobLuke (talk | contribs) (New page: 1. Crisis cools overheating economy but leaves debris flush|left One year ago Vietnam's economy looked like it was overheating, as inflation and asset pr...)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)
Jump to navigation Jump to search

1. Crisis cools overheating economy but leaves debris

One year ago Vietnam's economy looked like it was overheating, as inflation and asset prices rode a wave of foreign investment and credit grew looser. Then came the credit crisis.

Template:Infobox Midpage Need Sponsor Right

Six months later Vietnam, like fellow frontier market economies Kenya and Hungary, had seen its equity, property and interest rate markets pummeled as spooked foreign investors fled.

Asset values dropped, credit dried up and the Vietnamese dong began sliding in value. On the other hand, so did the Vietnamese inflation rate.

When the crisis hit, Vietnam's central bank, the State Bank of Vietnam (SBV), was forced - as in most frontier markets - to cut interest rates quickly as investment capital dried up. That reversed a tightening trend at the SBV aimed at tackling inflation. Trading on Vietnam's blue-chip HoChiMinh Stock Exchange (HSX) and Hanoi Securities Trading Center (HaSTC), already in decline after recent gung-ho years, slumped and the benchmark VN Index lost two-thirds of its value over the year.

Vietnam's's property markets, already on a slide after several boom years, tanked completely as the financial crisis worsened in late 2008. By the end of the year, several listed Vietnamese property corporations were salling for government intervention in the country's real estate market after it all but froze.[1]

And Vietnam's quarterly economic growth rates dropped below the government's target figure of 7% following growth in 2007 of 8.5%. That led some analysts to speculate that Vietnam may have abandoned its overall economic strategy of high growth in favor of financial and social stability.[2] Bolstering this, Vietnam's GDP growth in the first quarter of 2009 dropped to an annualized rate of around 4.5%, down from 6.5% one year ago.[3]

But the ill wind of the 2008 financial crisis has blown some good in Vietnam. Inflation, which menaced the country in mid-2008 with month-on-month rates of almost 30%, has receded significantly. From mits height of 28.3% in August last year, Vietnamese inflation has fallen every month since to stand at 14.78% in Februaury 2009, down from 17.48 one month earlier.[4]

Now Vietnam aims to export its way back to economic safety and re-attract foreign direct investment (FDI), partly by using monetary policy to control the value of its currency, the Vietnamese dong. The SBV, which controls the dong's vaue against foreign currencies, recently loosened its trading band with the U.S. dollar[5] and also sold a tranche of dollar-denominated government bonds in March 2009 and aims for a further sale later in the year.[6]

But Vietnam also faces internal challenges threatening the government's goals on economic growth and financial developmrnt. One is a vast pool of underemployed urban workers that will be created by estimated layoffs in 2008-2009 of almost one million people.[7] These mostly migrant laborers laid off from the shoe and garment factories suffering worst from the downturn are likely to return to their extended families in rural areas, placing further strains on the social fabric of those areas.[8]

Nonetheless, economic analysts seemed to concur with the Vietnamese government's targeted 2009 GDP growth figure of 6.5% by late in 2008.[9]

But boosting exports will be a challenge as industrial production begins to slow and commodity prices remain depressed (see story below), although the Vietnamese government recently introduced its own version of a "stimulus package".[10] And Vietnamese-equity investors on the HSX and HaSTC don't expect the VN Index to bottom until sometime in late 2009, itself somewhat in advance of the Vietnamese economy itself.[11]

On the other hand, popular South East Asian fast-food chain Jollibee's, based in Manila, recently announced it would add four more Vietnam outlets to its existing 10. A company executive said that Vietnam, which contributes 15% of Jollibee's total Asia-Pacific/Middle East revenues, "has been showing much promise vis-a-vis other mainstream markets."[12]