[Vnbiz] USD continues to rise at banks

[Tran Dinh Hoanh]

Dear Brother Hao,

Thanks for the question.

A lot of factors are at work here.  First, there is a renewed optimism on
Vietnam's economy.   Vietnam's economic structure is relatively strong.
Everyone in the world knows that the inflation crisis' causes were not
internal:  It is the combination of the stock crash (from over investment,
driven by foreign investors) and the oil and food price crises.  (The fiscal
deficit and trade deficit help the crisis and make it harder to solve the
crisis, but not really are the immediate causes).  Now the worst is over,
and everything is on the way up.  The government responses coupled with the
natural order of things (i.e., stock crash effects dissipated over time,
food price going up to market price, etc.) are bringing things up steadily.
In addition, the USD is gaining a bit of strength in the international
market and will continue to gain strength because neither political party of
the US can afford to let it slide further.  This, coupled with the VN free
market's working to keep the USD at its true value, will strengthen Vietnam
export and production and reduce import, which will help reduce the trade
deficit, which in turn will increase investors' confidence.  That is the
general background.

The stock price now is very low, if you buy now, the price will go up, you
will make money.  And with an optimistic future in the horizon, why not
buying now?  And if the USD is high and you buy stock in VND, you can buy
more stock for the same amount of USD if you can exchange your USD at the
free market price.  This kind of behavior will drive the stock market.
Please note, domestic stock investors usually take the hint from
international investors.

Now, about interest rate, if the interest rate is too high, it will hurt the
stock market.  The current interst rate is high enough to attract some
investment in VND.  But brother Hao is right, a lot of VND still stays
outside bank saving accounts and a lot of it will go to USD because the USD
is increasing in value.  But (1) foreign stock investors don't care
about storing money in USD.  They care about using the high USD value to buy
a lot of stock now at its low end, aiming for profit soon. (Please note,
regardless how you look at it, the stock price is very low now.  The chance
for it to increase in price and value is more than 90%).  If foreign
investors see the opportunity, many domestic investors will follow suit.
But I also believe that many domestic investors see the potential
themselves.

(2) The USD price will not rise as high as the stock price.  I think that
the stock price within 1 year (or 2 years is the most) may rise up to 600
point on VNINDEX.  The chance for the USD to double value in the next 5
years is about zero.  And if Vietnam's economy gains back strength (which it
will), then the USD may lose value versus the VND.  So for middle-term
strategy (1 or 2 years), investing in stock will give you much more profit
in investing in the USD.

(3) There is still a chance that USD will lose value suddenly if oil price
increases suddenly.  I don't think international oil price will have
anything to do with the VN stock market (or it it does have some effect, the
effect would be minimal).

Hope this helps.

Oh, about eceonmic growth, well, the worst prediction from anyone on VN is
around 7%, that is very high compared with other countries around the
world. Nothing to worry about.

Have a great day!
Hoanh
__________________

2008/6/18 Quach Manh Hao <quachhao at gmail.com>:

> [ Vietnam Business Forum ]
>
>
> Dear anh Hoanh,
>
> Thanks for interesting comments. However, I don;t really understand your
> analysis .. or I must have missed your logics somewhere. Could you explain
> how the mechanism would happen?
>
> The rising USD is not because of the trade deficit in my view, but
> because of choosing US dollars as value stored assets. We may be well aware
> that there is still a large amount of increased money supply that is still
> outside the banking system - this is clearly not affected by monetary
> tightening. As the real deposit rate is negative, this money does not go to
> to the banks. At the same time, banks face liquidity dificulties, and hence
> firms find themself hard with financings. Concerns over economic growth
> would make no investors to be confident in stock market at the moment. Their
> best choice now is taking US dollars. And that's the story goes (in my
> view).
>
> After all, I guess we should increase interest rate further and at the same
> time, lower reserve requirements.
>
> Cheers,
> Hao
>
> 2008/6/18 Tran Dinh Hoanh <tdhoanh at gmail.com>:
>
>> [ Vietnam Business Forum ]
>>
>>
>> Dear CACC,
>>
>> I forgot to mention that a rising USD will have the tendency to bring
>> foreign money into the VN stock market.  So if the market price of the USD
>> continues to rise (and the SBV doesn't harass the free market too much), we
>> may see the VNINDEX continue rising.
>>
>> Previously I have said that the first month that we have no trade deficit,
>> the stock till rise.  That is still true.  However, it is also true that if
>> the USD continues to rise strongly, then we don't have to wait till the
>> trade deficit is zero to see the stock rise (provided that the trade deficit
>> for the month is shrinking greatly).
>>
>> When we have no trade deficit (or even a small trade deficit) and the
>> USD is strong, we can expect that the stock will rise continuously (of
>> course, with exception on some days) for at least a year or so, probably all
>> the way until it reach around 600.  So if you have stock now, don't be too
>> anxious to sell it.
>>
>> Have a great day!
>> Hoanh
>>
>

-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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