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Traders play safe as dollar, gold skyrocket
Although it is now mid-October, many trade companies in HCM City have yet to make plans to increase merchandise inventory to prepare for the year-end holiday season.
This is quite unlike previous years, when companies began to ensure that they had a sufficient stock of goods to sell in anticipation of Tet (Lunar New Year) holidays.
Truong Thi Hong, Director of An Phong Trade Company, said her company had imported only 20 per cent of the volume of goods that were imported last year.
The increase in US dollar has led to higher prices for all kinds of goods, particularly imported ones, and lowered consumer demand.
Phan Hong Dao, CEO of Binh Thanh Food and Aromatic Spices Distribution Company, said her company had received only 20 orders from retail shops, or about one-fourth of the amount compared to the same period last year.
"We've ordered a volume equivalent to only 50 per cent of last year's figure to prepare for Tet," Dao said.
"We don't plan to import more since we're afraid of market price fluctuations," she added.
Nguyen Thi Aùnh Hoa, owner of a Citimart chain, said she had no intention to hoard goods.
Instead, she would reserve enough cash for the company's trading activities at year-end.
"The rate of the US dollar and of goods has increased while the market's purchasing power remains unstable. It will be difficult to make a profit. However, we still need to sail with the wind," Hoa said.
Because supply sources for both foreign and domestic goods are plentiful, Citimart supermarkets said they would have enough merchandise.
"If we prepare enough cash in both domestic currency and US dollar to pay to distributors, then they will give us priority and offer discounts of 1 or 2 per cent as we are buying their goods," Hoa said.
"We plan to store essential goods for only one month," she added.
"Capital sources for my business come from gold," said Nguyen Thi Chi, a wholesale trader in An Dong Market. "The prices of gold and US dollar have gone up rapidly so I don't dare to buy commodities for trading."
To maintain business, Chi said she had decided to act as a middleman.
"This could bring a much lower profit but it is safe and I can maintain my capital," she said.
Luong Van Vinh, director of My Hao Company, has decided to stock production materials. He said it was a safe way to maintain capital resources since the US dollar continued to rise.
Gold imports: A band-aid
On the afternoon of October 7, the Central Bank of Viet Nam officially granted permission to import gold for 10 businesses, with a total volume of around three tonnes.
The companies licensed to import the precious metal include Sai Gon Jewellery JSC (SJC), Phu Nhuan Jewellery SSC (PNJ), Agribank Jewellery Company, Sacombank, and several others.
SBV governor Nguyen Van Giau said the bank had decided to allow gold imports to allay the market's psychological impact, and to avoid undue vitality caused by wild gold-market fluctuations.
In reality, the decision caused the domestic gold price to align more closely with the global gold price.
This contributed to slowing down the increasing momentum of the price of the US dollar, even when the newly imported gold had reached the country.
Before the decision was issued, the price of gold on the domestic market was often VND1 million (US$51.28) per tael higher than the global price.
On October 8, the world gold price fell by s$30 per ounce to $1,328. Meanwhile, the domestic gold price of one tael (equivalent to 1.2 troy ounces) was also down to VND32.32 million.
As a result, the gap between domestic and world rates is more than VND600,000.
However, market experts believe that the central bank's gold-import decision will only be a provisional measure because it will not resolve the basic problem of supply and demand.
A representative of a gold trading company in HCM City said the newly imported 3 tonnes of gold might only make up for a gold shortage caused by the enterprises' gold jewellery exports, which is estimated at 36 tonnes in the first six months.
However, it would not meet market demand in the future.
The fact shows that the volume of gold bars on the market has not been plentiful as it was before, while many new gold speculators have appeared recently in hopes of making big profits because of the gold price fluctuations on local and global markets.
In addition, the global gold price is predicted to go up. Large organisations around the world have also forecast that gold prices would reach $1,400 per ounce in the fourth quarter because of the devaluation of the US dollar, caused by the slow recovery of the US economy.
As a result, price fever will likely to continue. Thus, the solution to import a small volume of gold will only temporarily make gold markets less tense.
Banks try to find dollars
A US dollar supply shortage is looming as banks in HCM City scramble for more dollar funds.
According to a report on foreign exchange by the HCM City branch of the central bank, the city banking system's credit in the greenback has reached VND186 trillion (US$9.5 billion), registering a year-on-year increase of 36.4 per cent. Meanwhile, credit growth for the dong is a slight 9.4 per cent.
The report says that banks are buying dollar mostly from one another, with the proportion as high as 47 per cent.
The amount of dollars they are buying from businesses is only 40 per cent; from the central bank, 3 per cent; and the rest from other sources, such as remittances.
A majority of State-owned commercial banks' branches in the city are even seeking help from their headquarters in Ha Noi to cope with the dollar shortage.
The high consumer price index in September of 1.31 per cent and the depreciation of the dong against the greenback have caused business anxiety about the forex risk, so they have chosen to hold on to the dollar to be on the safe side.
Meanwhile, companies are scouting for dollars to pay for imported goods and settle foreign debts, leading to a supply scare.
Bank interest rates for the dollar and gold have inched up and the gold price has reached more than VND33 million per tael. These factors have caused depositors to shift to dollar or gold instead.
To reduce the country's trade deficit and address the high dollar demand, the central bank has asked commercial banks to limit US dollar and dong lending to importers of goods that can be produced domestically.
An official of the Bank for Foreign Trade of Viet Nam said that because the market demand for dollar-denominated loans had not yet shown signs of easing, many commercial banks have had to raise more capital in US dollars by raising interest rates to 6 or 7 per cent for short-term deposits and to 5.2 per cent per-year for long-term deposits.
Some banks have also transferred their short-term loans to medium – and long-term ones with higher interest rates to cope with the shortage of US dollars.
Experts predict that the banks' moves will partly settle the dollar shortage, but will likely cause the banks to have more high-risk, hidden loans, including bad debts.
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