Vietnam in strong position to defend against external shocks: HSBC

With fewer concerns about currency and external stability, Vietnam’s central bank is likely to be more comfortable with delivering interest rate cuts to support growth.

While the Vietnam’s economy has been hit hard by the Covid-19 pandemic, the country is in a relatively strong balance of payments (BOP) position to defend itself amid external shocks, according to HSBC.

 Vietnam’s BOP position has greatly improved over the years.

From 1996, Vietnam has sustained its BOP surplus in most years, except in 2009, 2010 and 2015. In 2019, in particular, it achieved a record-high BOP surplus worth US$23 billion, equivalent to 9% of GDP.

Looking at the breakdown, the driver for the BOP surplus has somewhat shifted. Prior to 2011, a large financial account (FA) surplus was the main contributor, even during the global financial crisis (GFC) when the BOP turned into deficit for two years. However, after 2011, the current account (CA) turned from deficit to surplus (except in 2015 and 2017), pushing the BOP into a large surplus.

Vietnam’s accession of the WTO in 2007 opened the door for its large FA surplus. It has introduced a sustained influx of sizeable foreign direct investment (FDI). In particular, registered FDI jumped to US$71 billion in 2008, a three-fold increase from the preceding year. However, it failed to translate into strong growth, though the timing of the GFC was to be partly blamed. After a few years of falling FDI, Vietnam saw a resurgent in FDI since 2013 with investment from South Korea, in particular from Samsung, flocking into the country.

As early as 2014, when Samsung opened its first smartphone plant in Vietnam, the tech giant alone had invested a total of US$17.3 billion as of 2018. In 2019, Samsung closed its last phone factory in China, and now it produces over half of its smartphones in Vietnam.

Meanwhile, FDI flows into effective exporting industries also helped Vietnam’s CA turn into a favorable position. Vietnam ran a CA deficit as large as 11% of GDP during the GFC, because high investment translated into surging imports but were unable to generate enough exports.

However, the influx of foreign investment into productive manufacturing sectors has changed its BOP landscape in recent years. With Vietnam rising as an electronics assembly hub (though still low-end) in particular, the country saw a growing abundant trade surplus. Its electronics exports grew from US$3 billion (4% of total exports) in 2008 to US$87 billion (33% of total exports) in 2019. Therefore, there has been a record-high level of Vietnam’s trade surplus at US$11 billion, pushing its CA surplus to +5% of GDP last year.

Moreover, the widening secondary income surplus has also supported a favorable CA position. A large chunk of it comes from the consistent injection of remittances, thanks to a large population of Vietnamese migrants overseas. Remittances grew steadily over the past two decades, making Vietnam the fourth largest recipient in Asia, with inflows worth of US$16.7 billion (6.4% of GDP) in 2019. The majority of remittances was sent from OECD countries, with the US alone accounting for more than half.

 

C.bank has room to further cut benchmark rates

Vietnam’s efforts towards a more favorable BOP position in the past few years has translated into a rapid accumulation of foreign exchange (FX) reserves. In 2019, its FX reserves totaled close to US$78.8 billion, able to cover approx. four months of imports. This is stronger than the FX reserves during the GFC, when they fell more than US$7 billion in one year.

For one, this high level of FX reserves has supported the VND to remain relatively resilient. The VND depreciated against the USD substantially in the 2008-09 crisis but has remained relatively stable in recent years. the USD/VND rate depreciated modestly around 2% per annum in 2017 and 2018, before stabilizing at 23,173 in 2019.

Despite depreciation pressures, the VND is likely facing this year, weakness in the VND should remain relatively modest. HSBC expected a 1.2% year-on-year depreciation for the VND vs the USD, leading to its year-end forecast of 23,450. After all, past episodes of sharp VND depreciation led to negative impacts on the economy, such as fueling high pass-through to inflation and deterring FDI inflows.

With fewer concerns about currency and external stability, the State Bank of Vietnam, the country’s central bank, is likely to be more comfortable with delivering interest rate cuts to support growth. This is particularly the case when fiscal room is limited in the country. HSBC expected the SBV to cut another 50bp of its refinancing rate in the third quarter, followed by a recent 50bp cut. Hanoitimes

Ngoc Thuy

Vietnamese currency forecast to continue weakening in 2020

Vietnamese currency forecast to continue weakening in 2020

Weaker foreign direct investment inflow on the back of the Covid-19 pandemic and a likely preference by the central bank for a weaker Vietnamese dong to support export competitiveness would be key drivers of dong weakness over the near term,

Foreign currency market eases following central bank’s intervention

Foreign currency market eases following central bank’s intervention

The US dollar on Wednesday depreciated against the Vietnamese dong after the State Bank of Viet Nam (SBV) sold the greenback on the cheap to stabilise the local foreign exchange market.  

 
 

Other News

.
PM orders control over capital poured into property sector
PM orders control over capital poured into property sector
BUSINESSicon  21/04/2021 

Prime Minister Pham Minh Chinh has asked the State Bank of Vietnam (SBV) to closely control the capital injected into the real estate sector to prevent property speculation and ensure that property projects meet the demands of residents.

Transport Ministry proposes support policies for Vietjet, Bamboo Airways
Transport Ministry proposes support policies for Vietjet, Bamboo Airways
BUSINESSicon  20/04/2021 

The Ministry of Transport has proposed the Government work out policies to support Vietjet and Bamboo Airways, 

Nearly 40 planes grounded due to Covid-19
Nearly 40 planes grounded due to Covid-19
BUSINESSicon  20/04/2021 

As many as 39 planes of four airlines were left unused and parked at airports or in hangars as of the end of the first quarter due to travel restrictions to curb the spread of the Covid-19 pandemic, according to Civil Aviation Authority of Vietnam.

Vietnam to become hotspot for high-tech investment
Vietnam to become hotspot for high-tech investment
BUSINESSicon  20/04/2021 

With expectation to develop into a leading digital economy in Southeast Asia over the next decade, Vietnam is also witnessing a strong inflow of high-tech investment swelling performance in the region.

Leaders grapple with core function of SOEs
Leaders grapple with core function of SOEs
BUSINESSicon  20/04/2021 

Vietnam’s moves to reform and boost the performance of state-owned enterprises is just the latest in a long line of adjustments over the years, 

Asia-Pacific: Vietnamese prefer digital banking the most
Asia-Pacific: Vietnamese prefer digital banking the most
BUSINESSicon  20/04/2021 

Vietnamese tend to be more open to digital banking services than people in other countries in the Asia-Pacific region such as Singapore, Malaysia, New Zealand or Australia, according to a recent survey by FICO.

Lotte Group to shut down restaurant business Lotteria in Vietnam?
Lotte Group to shut down restaurant business Lotteria in Vietnam?
BUSINESSicon  19/04/2021 

Fast-food restaurant chain Lotteria – a subsidiary of the Republic of Korea's Lotte Group – could close its Vietnamese franchise due to tepid performance.

Vietnam banks plan long-term development
Vietnam banks plan long-term development
BUSINESSicon  20/04/2021 

Banks have reported satisfactory business results for 2020 and are projecting ambitious plans for 2021.

Businesswomen earn big money
Businesswomen earn big money
FEATUREicon  20/04/2021 

Nguyen Thi Phuong Thao, Cao Thi Ngoc Dung, Dang Thi Hoang Yen and Nguyen Thanh Phuong were in the news last week.

5-star hotels slash service fees to lure Vietnamese guests
5-star hotels slash service fees to lure Vietnamese guests
BUSINESSicon  19/04/2021 

Many luxury hotels remain deserted with no foreign guests during Covid-19 and, as a result, hoteliers have slashed room rates to survive the difficult period.

HCM City crocodile farming in a deep slump
HCM City crocodile farming in a deep slump
BUSINESSicon  19/04/2021 

Crocodile farmers in HCM City are facing heavy losses since the COVID-19 pandemic is affecting export.

Strong supply keeps pouring into the industrial market: JLL
Strong supply keeps pouring into the industrial market: JLL
BUSINESSicon  19/04/2021 

The supply of industrial property in the South is expected to rise further in the next five years to capitalise on the increasing demand in the region, and further strengthen its leading position in terms of supply, according to JLL Vietnam.

International credit rating organisations interested in Vietnamese market
International credit rating organisations interested in Vietnamese market
BUSINESSicon  19/04/2021 

Many international credit rating organisations want to join the Vietnamese market, attendees heard at a seminar in HCM City on Friday.

Will market continue its downward trend this week?
Will market continue its downward trend this week?
BUSINESSicon  19/04/2021 

The market ended lower last week as many large-cap stocks faced selling pressure after the VN-Index hit a new high of over 1,255 points.

VIETNAM BUSINESS NEWS APRIL 20
VIETNAM BUSINESS NEWS APRIL 20
BUSINESSicon  20/04/2021 

Foreign investment into Vietnam up sharply

Vietnam in good position to start electric-car industry
Vietnam in good position to start electric-car industry
FEATUREicon  19/04/2021 

Vietnam has the opportunity to manufacture electric cars more easily than other countries with already well-established auto industries because Vietnam has no auto industry that would need to to sacrificed, experts have said.

Services sector expected to expand by 7-8 percent this decade
Services sector expected to expand by 7-8 percent this decade
BUSINESSicon  18/04/2021 

Vietnam’s services sector is targeting a growth rate of 7-8 percent in the 2021-2030 period, higher than the economy’s average growth rate, and eyeing to account for 50 percent of GDP by 2030.

Vietnam applauds positive adjustment in US Treasury Department’s report
Vietnam applauds positive adjustment in US Treasury Department’s report
BUSINESSicon  18/04/2021 

The US Treasury has removed Vietnam  from the list of countries labeled as currency manipulators.

Small investors continue inundating markets
Small investors continue inundating markets
BUSINESSicon  18/04/2021 

The sudden surge in individual investors that had inundated the stock markets throughout last year has not waned in the first two months of 2021, with the VN-Index exhausting at a historical peak of 1,200 points.

Suez Canal incident: Vietnam’s perspective
Suez Canal incident: Vietnam’s perspective
BUSINESSicon  18/04/2021 

On March 23, 2021, on the way from Tanjung Pelepas Port (Malaysia) to Rotterdam Port (the Netherlands), the Ever Given, a container ship, ran aground when moving along the Suez Canal.

 
 
 
Leave your comment on an article

OR QUICK LOGIN