Currency stabilises following devaluation

Monday, Sep 14, 2015 11:02

The dong-dollar exchange rate has stabilised in the last two weeks. — Photo


In the last two weeks the dong-dollar exchange rate has stabilised after a brief frisson caused by the State Bank of Viet Nam (SBV)'s decision to depreciate the currency after China did so.

The return to calm has been attributed to the SBV's announcement it would not adjust the forex rate until at least early 2016.

But many remain chary, fearing renewed pressure if the US raises its interest rates this month, or the yuan depreciates further.

Many analysts, however, have dismissed fears the FED would hike interest rates sharply since the sudden and sharp depreciation of the yuan has made the US cautious about raising interest rates soon.

Besides, the US's inflation rate is low, and most countries around the world are trying to loosen monetary policy to boost their economies, they point out.

Even if the US adjusts interest rates, the change would be minor, meaning there would not be much pressure to depreciate the dong.

Bankers also reassured that the central bank's recent adjustments had given the exchange rate enough room to cope with unfavourable changes in both the domestic and overseas markets.

With its plentiful foreign exchange reserves, the central bank would be ready to sell the greenback to support the dong and keep it within a permissible band, they said.

A Viet Capital Securities analyst said the SBV had so far this year sold around US$3 billion to support the Vietnamese currency.

The bankers said though the country's balance of payments was slightly hit in the first eight months because exports were tepid, the central bank would be able to meet the demand for dollars this year and even in the first quarter of next year.

The country has foreign exchange reserves of around $37 billion and 10 tonnes of physical gold.

Loosening money

The HCM City Housing Development Bank (HDB) recently unveiled a VND4 trillion ($178.17 million) preferential credit package for businesses against dong and dollar deposits they may have at any bank.

The loans carry an interest rate starting at 6.5 per cent.

VPBank has earmarked VND2 trillion ($88.9 million) for preferential loans to small and medium-sized enterprises, ABBank has set aside VND1 trillion ($44.44 million) long- and medium-term loans to enterprises.

VietinBank has designated VND10 trillion for individual customers who want to do business or buy consumer goods, BIDV hopes to lend VND12 trillion worth of personal loans.

Analysts said many banks are hoping to increase loans to businesses in the last few months of the year, when traditionally there is a spike in business activities.

According to the SBV, in the first eight months banking credit grew at 10.23 per cent compared to 4.33 per cent in the same period last year.

In HCM City the figure was 6.5 per cent, the highest in the last three years.

Analysts attributed the strong credit growth to the clear signs of economic recovery, which has sharply demanded for funds.

There are also some worries over the spike.

The fact that some banks have recently hiked their deposit interest rates is a pointer to their liquidity status, and this is causing concern about their loan to deposit ratio.

The rates for three-month deposits have risen by 0.3-0.4 percentage points to 5.5 per cent at many banks.

For 13 months the rate averages 7.3 per cent, a 0.3 percentage point rise.

Analysts said the sharp increase in credit also means monetary policy has been loosened.

Loosening is necessary to some extent at this juncture for the country to achieve its economic targets, but in Viet Nam the spectre of inflation and currency volatility is never far away.

To ensure sustainable growth in the long term, analysts said the economy should stop depending so overwhelmingly on bank credit, which now accounts for 80 per cent of gross capital formation, and develop the capital market and make it the main source of funding.

The banking sector should act more as a supplier of financial services and working capital, and partly support businesses' long-term investments, they said.

Where to go?

Three months ago investments flowed mainly into the stock market and then the housing market after gold had fallen out of favour.

But now many investors do not know where to park their money since the financial markets have turned volatile.

Gold should not be attractive for at least a year or two, according to analysts. Global gold prices are expected to continue falling and the prognosis is it could go down to $800 per ounce by the end of 2016.

The dong-dollar exchange market again stabilised in the last week of August after the SBV assured it would not devalue the currency again until at least year-end.

But analysts said the dollar is a good long-term proposition since the FED is likely to raise interest rates in the coming time, strengthening the greenback.

The housing market does seem to have better prospects, but its inventories are so huge it will need at least five years to liquidate it.

The low-income housing segment seems to be the most attractive because housing demand remains really huge and the Government as well as banks are offering a slew of cheap-credit programmes for the benefit of low-income buyers.

The recent depreciation of the dong has helped improve sales of medium- and high-end apartments. In HCM City alone 2,300 of these apartments were sold in the second quarter, three times the number sold a year earlier.

Many analysts agreed that investing in stocks is not a great idea at the moment because of the implicit risks due to the shaky recovery of the economy and companies.

Yet they chose this asset class over all others, recommending the stocks of listed housing developers.

They were confident these companies would benefit from the governments' efforts to revive the real estate market. Their lands are mostly "clean" and so it would be easy to sell them at attractive prices, they added.

Some major foreign funds have recently bought heavily into listed property companies.

Dragon Capital, for instance, has bought stocks of KBC, Phat Dat, Khang Dien, Vingroup, and DIG.

Other property firms like CEO, DXG, and VIC are also seeing strong buying interest.

Other sectors that are recommended are building materials and securities. — VNS

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