Vietnam Financial Review

Vietnam Financial Review - Vietnam Financial Review A Home...

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A Home Run for Bonds? Wednesday, 14 April 2010 Many reports have outlined the struggles of Vietnam’s nascent bond market. This month VFR looks at a report from HSC that gives the outlook for the country’s bond issues for the coming year. In the year ahead As we start the Year of the Tiger, the outlook for the domestic bond market is still a little cloudy for several reasons. There are fears of rising in± ationary pressures and external debt, and a continued slow depreciation of the dong. Together, these limiting factors, seem to place Vietnam ahead of other similar economies, leading one to expect a relatively prosperous year for bond issuance. Enter the infationary tiger The chart shows the lagged relationship between credit growth and CPI in Vietnam. This suggests that since credit growth clearly peaked at 37.7 percent at the end of FY2009, CPI may hit its cyclical peak about 5-6 months from now. Vietnam’s in± ation hit its highest level in 10 months in February at 1.96 percent. However, we believe that the delayed effect of last year’s credit growth was not yet been fully factored in and CPI will continue to rise. This would add some pressure to bond yields, and may introduce some risk in sovereign bond issuance. The VND seems likely to continue its long-term depreciation versus the USD this year although at a softer pace than FY2009. A continuing trade deficit coupled with a relative lack of confidence in dong assets are both seen as long term structural themes and they will remain the dominant themes in the Forex market again this year. There are several key factors which we believe will support the slower rate of depreciation: (1) Improving economic conditions globally set the stage for a likely improvement in USD inflows from exports, ODA, remittances and FDI. This should lead to higher export related dollar inflows in FY2010; (2) the monetary policy will continue to be actively managed this year with inter- vention by the regulators throughout the year to stabilize the market. 12/27/2010 Vietnam Financial Review www.vfr.vn/index2.php?option=com_… 1/5
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Based on these assumptions our NEER and REER models are showing signs of clear improvement as the devaluation continues a tapering off against the whole basket of currencies with key trading partners. This is entirely due to improved sentiment over the VND and VND assets. It speaks to the success of SBV’s other
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Vietnam Financial Review - Vietnam Financial Review A Home...

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