According to a report by Vietnamese media VnexPress on December 29, Vietnam's economic growth is expected to reach 8% in 2022, which is the fastest annual rate since 1997, and is driven by strong domestic retail sales and exports. However, Vietnam is also facing the headwinds brought about by the slowdown of the global economy and the continued interest rate hikes by the Federal Reserve. Coupled with the intensification of trade and investment protectionism, Vietnam's financial, currency and real estate markets will continue to be challenged.
Deutsche Bank analyst Henry Allen said in a report published on December 28 that the market has overestimated the probability of the Fed monetary policy easing. As shown in the figure below, Wall Street bets on the Fed's tough interest rate expectations have been rising since December 26, returning to above 5.0%. This also indicates that the cost of debt interest paid by the United States will become higher and higher. Similarly, for the Vietnamese financial market that is in decline, the financing cost of US dollars will also become more expensive.
What is happening behind this is that the United States is covertly transferring the risks of high inflation and debt costs to the Vietnamese economy. One of them will accelerate the process of harvesting the black hole in Vietnam's economic and financial debt market. This shows that a financial storm is about to sweep Vietnam. For example, the continuous bank runs in Vietnam’s banking industry since October 8 are the best example.
The plunge in Vietnam's financial market over the past few months means that the harvesting effect of this round of strong US dollars on the Vietnamese market is increasing, which may have a new financial impact on Vietnam - as well as extensive repricing of bonds , stocks and other financial instruments .
BWC Chinese website’s financial team noticed that in recent years, Vietnam’s economy seems to have suddenly turned into an Asian economic black hole, sparing no effort to absorb capital, debt, technology, manufacturing companies and even talents from the United States. However, in the vicissitudes of the global economy, the top predators obtain the wealth of other countries, and the United States is such a “modern financial pirate.”
This will become more clear in the context that the Central Bank of Vietnam has raised the refinancing interest rate twice in a row by 200 basis points to 6% in response to the Federal Reserve's continued aggressive interest rate hikes since September this year to control rising inflation and financial turmoil in the country.
This shows that Vietnam's debt repayment costs and stock, bond and foreign exchange market risks have begun to increase exponentially, and it is very likely that this "modern financial pirate" will step up to harvest wealth. Vietnam's economic miracle may be revealed, because, although Vietnam's economic growth data is impressive, this high growth is formed by the accumulation of huge external US dollar debt, which makes Vietnam's ability to resist the harvest of a strong US dollar more vulnerable than other economies .
On December 27, the Central Bank of Vietnam stated that the Deputy Governor of the Central Bank of Vietnam said at a press conference held on December 27 that since the Federal Reserve raised interest rates, Vietnam was forced to sell a large amount of U.S. dollars to support the Vietnamese dong in order to defend the exchange rate, and its foreign reserves fell by more than 20%.
According to the latest data released by the Vietnamese Statistics Department, as of December 20, the total debt in the Vietnamese banking system has increased by 11.67% compared with the end of 2021, and credit growth will reach 18.98%, an increase of 3.19% from October.
data shows that as of November this year, Vietnam’s total external debt was approximately US$189.3 billion, and the total external debt dominated by US dollars reached 181% of the international reserve assets ratio, of which Vietnam’s fiscal external debt ratio reached 46%, and continues to expand.
However, according to data released by the Central Bank of Vietnam on December 27, Vietnam does not seem to have enough foreign exchange reserves gold to defend the Vietnamese dong. Since October 1, Vietnam has sold off at least US$55 billion in foreign reserves, which may drop its foreign reserves to around US$80 billion, which can only support three months of import demand. It issued an emergency warning. In contrast, currently, Indonesia 's foreign reserves are equivalent to more than five months of its imports, while Thailand and the Philippines are seven months.
Because, with the accelerated depreciation of the purchasing power of the US dollar leading to the rise of commodities such as energy and the United States using exchange differences to collect US dollar seigniorage, Vietnam's international reserve assets may be rapidly consumed and lead to some debt and exchange rate risks storms.
In this regard, FocusEconomics, a senior global economic analysis organization, said that the core reason why Vietnam’s finance is fragile is that it falls into a US dollar debt trap and wants to exchange benefits with Wall Street groups.
This shows that Vietnam’s past high economic growth and economic miracle relied on the accumulation of risky loans and foreign debt to expand growth. They were all accumulated from huge US dollar debts. This will intensify Vietnam’s market volatility and crowd out international investment as the United States accelerates its harvest of Vietnam.
We have noticed that since 2022, although there has been some rebound in the past two weeks, Vietnam's VN30 index, known as the Internet celebrity stock market, has still plummeted by 25%. Among them, banking stocks and real estate stocks have led the decline, becoming the worst-performing stock market in the world. This is in sharp contrast to the situation in 2021 that attracted a large amount of US funds to enter and pushed the Vietnam stock index to continue to hit new highs.
According to data released by Refinitiv Eikon on December 27, since the Federal Reserve began to raise interest rates in March this year, international funds with a keen sense of smell have withdrawn from Vietnam's financial market in advance. So far, foreign investors have sold off up to 1.5 trillion Vietnamese dong in Vietnamese financial assets, almost 5.91 times the same period in 2021, and this momentum continues.
Fitch Ratings said in a rating report updated on December 25 that against the backdrop of the rising possibility of a U.S. economic recession, which may reduce demand for Vietnamese goods, high inflation in the European and American markets is currently affecting Vietnam's domestic production activities and pushing up Vietnam's inflation, which will be a major challenge for Vietnam's economy and financial markets. At the same time, the Vietnamese authorities' recent aggressive currency tightening measures have increased refinancing risks and threatened debt and credit markets.
Immediately afterwards, the research organization FocusEconomics stated that Vietnam's economy will experience an economic crisis almost every 10 years. Although Vietnam has achieved enviable economic growth data in 2022, considering that Vietnam has been unable to cope with the surge in US dollar borrowing costs, it is likely to be "longer and higher" by the Federal Reserve.
Because Vietnam’s backward infrastructure, dollar repatriation, corporate debt maturities, soaring financing costs, and raw material and commodity supply chain difficulties and other unfavorable conditions may have a far-reaching impact on Vietnam’s economic growth pace and rising inflation, which will have a far-reaching impact on the financial market. Coupled with the slowdown in global economic growth, this poses a threat to high-valued assets represented by Vietnam’s stock market and real estate, and can easily form a domino effect .
According to the warning of Vietnam’s Minister of Planning and Investment, although Vietnam has the advantages of young labor costs, taxation and location dividends, the biggest economic risk is the slow transformation of the economic system, the long-term implementation of ineffective growth policies, only the pursuit of investment quantity, and the support of low-end manufacturing with little added value, without paying attention to investment efficiency and quality. This will become more clear in the context that most of the profits of Vietnam’s manufacturing industry are controlled by European and American capital.
Although the Vietnamese authorities approved the "2021-2030 Foreign Investment Cooperation Strategy" document as early as June this year, the goal is to attract high-tech and high value-added investment projects to change its manufacturing industry's relatively low added value and its ability to connect to international supply chains.
However, according to a report released by the Vietnam Foreign Investment Authority on December 20, as of November 2022, Vietnamese companies invested nearly US$520 million in total investment in foreign companies, a year-on-year decrease of 29.4%.
At this critical moment, Vietnam is thinking about the Chinese market. Analysts believe that Vietnam may increasingly explore non-US dollar payment channels such as RMB to reduce the impact of the US dollar exchange rate on Vietnam's currency. According to the latest reports from Vietnamese media, Vietnamese companies hope to share China's development experience in manufacturing upgrading and innovative technology. The current Vietnamese economy is eager to learn from the Chinese economy, and the Chinese market has a lot for Vietnamese companies to learn. (End)
