Glass is half full, not half empty

Glass is half full, not half empty

VietFinanceNews.com - We seem to be going through another one of those periods when almost everyone you meet, especially in the bars, is talking Vietnam down and being negative.

However, there is a difference this time. In my 20 plus years here, the Vietnamese have never been negative or pessimistic, but today they seem to be adopting the negative sentiment. The economy is in far better shape than it was 12 months ago and the stock market has sprung back to life. Granted the property market has been flat, gold prices have lost their lustre and the local currency has been stable for 12 months, which generally means no easy money. But, there are still real opportunities.

Some good news is that Europe seems to have weathered the current storm, although it is not out of the woods, just yet. The US seems to be on the road to recovery which augers well for Vietnam’s overseas trade. Exports were up almost 24 per cent in the first quarter and we can expect that growth to continue albeit at lower rates than last year. Think of it, 12 months ago we had just had a 10 per cent currency devaluation, inflation was heading to 20 per cent, banks were offering around 20 per cent for VND deposits and 6 per cent for USD deposits. Investors were sitting on the sidelines questioning Vietnam’s macroeconomic stability and policies.

The government moved quickly to address many of the fundamental issues causing these macroeconomic problems, yet there are still many sceptics who question whether the measures taken would work. For the more seasoned campaigners who have been through many crises in Vietnam going back to 1990 when the Soviet Union withdrew its financial support, the one thing we have learnt is, Vietnam does have the capacity to address and resolve economic problems even though it may be slow to react.

Inflation, which was one of the greatest causes for concern has moderated significantly with the current annual rate close to 16 per cent and the year to date rate of less than 2.5 per cent making the government’s target of 10 per cent for 2012 achievable.

The State Bank has successfully stabilised the currency, since the devaluation in February 2011, and although many experts were forecasting further pressure at the end of last year this did not materialise. The government’s target of keeping any exchange rate movement against the US dollar to less than 3 per cent in 2012 seems to be highly plausible. Another interesting fact is that the difference between the official rate and the “free market” or “unofficial” rate has all but disappeared. This is the best indication that the government is achieving success in its efforts to de-dollarise the economy.

Gross domestic product (GDP) continues to grow at a healthy rate which many countries can only dream of and although last year and this year (forecast at 6 per cent), will be a little lower than the average rates seen over the last 10 years, a steady growth like this compounded over many years will be a satisfactory performance. According to a recent HSBC survey, Vietnam is listed as one of the 10 growth economies from now till 2050, with a projected long-term average growth of 5.5 per annum.

Another area to show improvement is the trade deficit. This, which has been a major concern together with the country’s foreign exchange reserves, has fallen dramatically and only registered a deficit of $250 million in the first quarter of 2012. Of course caution is needed here as this may reflect a slow down in orders, which may translate into a fall in exports. However, it appears the government is being successful in tackling the trade deficit to a much lower level than projected.

Foreign direct investment (FDI) continues to match the levels seen over the last three years, despite of increasing competition from Indonesia. The march of investors from China seems set to continue as does the increased interest from Japanese investors.

A recent survey by the ASEAN Business Council ranked Vietnam as the second most attractive investment destination behind Indonesia and ahead of Singapore, Thailand, and Malaysia,

There is also a significant volume, of what I would describe as FDI, being counted as indirect investment. That is investments by private equity funds and trade buyers who are investing directly into Vietnamese businesses through share acquisition. This is not really indirect investment as it is medium to long-term investment and not subject to stock market sentiment.

With the above trends and the continued high level of overseas remittances there is no pressure on Vietnam’s foreign exchange reserves. VinaCapital recently estimated that the State Bank had this year purchased $6 billion in foreign currency from the market to increase the foreign exchange reserves.

My own major concern was the state of the banking industry, but it also seems to be being addressed in a quiet, but firm way. The State Bank has started to classify banks into three groups and also to allocate credit growth ceilings on a selective basis recognising the well managed banks. The top tier banks are showing signs of improved liquidity and merging of the weaker banks with the stronger banks is actually starting to happen.

There is also no end of foreign banks looking to acquire significant and strategic stakes in Vietnamese banks, so this cloud seems to be slowly lifting and although this will be a long process, in my opinion, a significant bank failure is unlikely.

So why are we all so negative? My glass is certainly half full not half empty and we must remember the fundamentals which attracted us all in the first place are still there, although our game plans may need to be modified.

http://www.vietfinancenews.com/2012/04/glass-is-half-full-not-half-empty.html