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Vietnam in strong position to defend against external shocks: HSBC

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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

Source: https://vietnamnet.vn/en/business/vietnam-in-strong-position-to-defend-against-external-shocks-hsbc-642605.html

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Vietnam Airlines receives multimillion-dollar bailout package as state investment

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State Capital Investment Corporation (SCIC), the investment arm of the Vietnamese government, is looking to funnel VND8 trillion (US$347 million) into the charter capital of the flagship air carrier Vietnam Airlines.

On Thursday, Nguyen Chi Thanh, CEO of SCIC, revealed that the state-owned company is working with Vietnam Airlines to settle the share prices for the airline’s incoming offerings.

As per the government’s Resolution 194 on the bailout for Vietnam Airlines in light of the COVID-19 crisis, the air carrier is allowed to offer more shares to existing shareholders to increase its charter capital. The government has assigned the SCIC to buy shares of Vietnam Airlines.

While Vietnam Airlines is devising the plan to increase its capital via share offering before submitting it for appraisal of the State Securities Committee, SCIC is working to set an offering price that matches the market evaluation, Thanh said.

According to the SCIC leader, in order to set a proper price, Vietnam Airlines must figure out its corporate value, which in turn requires a business plan for no less than five years.

However, the business has yet to provide a long-term business plan as its future are still kept in limbo, with the date for resumption of international flights – a significant baseline for the plan – is still largely uncertain.

“As the development of the pandemic on the world remains unpredictable, it is hard to establish a business plan for Vietnam Airlines. Without it, we can’t assess the value of the company. Only when Vietnam Airlines returns on international routes can its business operation recover,’ Thanh remarked.

On behalf of SCIC, Thanh suggested enlisting the help of a reliable international auditing firm to assess the corporate value of Vietnam Airlines.

Meanwhile, SCIC will continue working closely with the airline and report to the Committee for Management of State Capital at Enterprises as well as other relevant authorities to ensure the efficiency and lawfulness of the investment process.

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Source: https://tuoitrenews.vn/news/business/20210116/vietnam-airlines-receives-multimilliondollar-bailout-package-as-state-investment/58820.html

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Think tank forecasts 6.46 percent growth for Vietnam

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Think tank forecasts 6.46 percent growth for Vietnam

A container ship docks at Ben Nghe Port in Ho Chi Minh City. Photo by Shutterstock/Claudine Van Massenhove.


A government think tank has pegged economic growth at 6.46 percent this year thanks to the country’s success in containing the Covid-19 outbreak and maintaining stability.

Vietnam is one of the fastest recovering economies in Asia, the Central Institute for Economic Management (CIEM) said in a report.

In the best case scenario, credit growth would be 13 percent against 10.1 percent last year, it said.

But it also warned of risks that could hamper growth, like the unpredictable global economic situation as the pandemic situation remains severe in many countries and possible anti-dumping and countervailing investigations by the U.S. and other countries.

Several international organizations have forecast a strong recovery for Vietnam this year, with lender HSBC forecasting growth of 7.6 percent. The International Monetary Fund and Asian Development Bank have forecast 6.5 percent and 6.1 percent growth.

The government has set a target of 6.5 percent.

Source: https://e.vnexpress.net/news/business/economy/think-tank-forecasts-6-46-percent-growth-for-vietnam-4221938.html

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SCIC to invest VND8 trillion in Vietnam Airlines

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A Vietnam Airlines plane – PHOTO: ANH QUAN

HCMC – The Government’s investment arm, State Capital Investment Corporation (SCIC), plans to invest VND8 trillion in Vietnam Airlines, SCIC general director Nguyen Chi Thanh announced on January 14.

In accordance with the Government’s Resolution 194 on supporting Vietnam Airlines to overcome difficulties caused by the Covid-19 pandemic, the national flag carrier will issue shares to its existing stakeholders to raise its charter capital. SCIC would represent the Government, which owns 86% of the national flag carrier, to buy the shares.

Thanh said Vietnam Airlines is drawing up the share issuance plan, which will be submitted to the State Securities Commission of Vietnam for consideration, and working with SCIC to determine the issue price.

According to the SCIC leader, to determine the issue price, Vietnam Airlines and SCIC have to evaluate the carrier’s enterprise value, which is based on its business plan for the next at least five years.

“The Covid-19 pandemic is still developing complicatedly globally, making it hard to determine Vietnam Airlines’ business plan. We cannot evaluate the carrier’s enterprise value without the business plan,” Thanh said.

SCIC has selected a world-renowned audit firm to help evaluate the enterprise value of Vietnam Airlines. SCIC is also working with the airline, the Commission for the Management of State Capital at Enterprises and other relevant agencies to ensure effective, careful and lawful investment in Vietnam Airlines.

Source: https://english.thesaigontimes.vn/80183/scic-to-invest-vnd8-trillion-in-vietnam-airlines.html

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