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Industry, retail recover, but currency woes remain
Economic growth remains on track with industrial production and retail sales growing by 13.7 per cent and 25.1 per cent in the first 10 months, Viet Nam Asset Management Ltd said in a monthly report.
However, the inflation and exchange rates remained major concerns.
In October prices rose by 1.05 per cent, taking year-to-date inflation to 7.58 per cent, showing no clear signs of slowing down despite the Government's increased efforts to control prices after their sudden sharp rise in September.
Given the last few months of the year usually experienced high festive-season inflation, which would possibly be worsened by the worst floods in the last 60 years in central provinces, consensus estimates were at 9-10 per cent inflation this year, well above the Government's target of 8 per cent.
Another issue was the rising divergence between official and unofficial foreign exchange rates.
Gold shops were selling the dollar at VND20,160, 3.4 per cent higher than at commercial banks.
The rise in the free market was mainly attributable to a strong increase in demand for the greenback.
There were some vital reasons for the surge: importers paying for purchases made in preparation for the high year-end consumption; businesses repaying dollar loans falling due; businesses importing gold to re-sell in Viet Nam to arbitrage the difference in domestic and world gold prices; and individuals hoarding the dollar and gold.
The last was considered the most challenging to deal with since hoarding assets was a deep-rooted habit among the Vietnamese, especially in times of high inflation and exchange-rate volatility.
In an attempt to ease the downward pressure off the dong, on 29 October the State Bank of Viet Nam had prohibited banks from selling gold deposited by customers and using the proceeds for lending or buying foreign currencies.
However, the SBV should take stronger measures to revive people's confidence in the dong. Some measures that were spoken about included a further devaluation of the dong towards year-end, which policy makers did not favour, the SBV injecting dollars into the market from its reserves, removing the interest-rate cap on dong loans.
All these indicated a tightening of monetary policy by the government and the SBV in the coming months.
Stocks stall
VAM analysts said the VN-Index reacted to all this news with another month of sideways movement, ending October at 452.63, down just 0.4 per cent during the month.
The market is at a low point but will continue to go sideways in the short-term due to uncertainties over inflation and currency devaluation, they said.
"In the third quarter, corporate earnings generally did not provide adequate support to the market and liquidity on both bourses has been quite low recently.
"We think investors are waiting for a clear signal that economic health is improving before pumping back money into the market. Despite the rather bearish sentiment now, we note that the hot money flow from overseas is ready to come back to Viet Nam at any time as long as the market starts picking up."
The favourite sectors for long-term investments remain consumer goods, IT-Telecom, fertilisers, and pharmaceuticals, they said.
For short-tem trading plays, VAM maintains a watch on certain commodities stocks in the sugar, natural rubber, and rice sectors as well as some high-dividend yield stocks.
Overall, the company will uphold its bottoms-up approach and keep a close watch on the business performance of fundamentally sound firms as it thinks these stocks will be the first to recover once the macro-economic picture stabilises.
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