In the vicissitudes of the world economy, the top predators obtain wealth from other countries, and the US dollar is such a "modern financial pirate". With the accelerated depreciation of the purchasing power of the US dollar, the price of commodities rises, and the United States uses extremely loose and radical monetary policy switching to harvest seigniorage, the accumulated international reserve assets in Vietnam may be consumed quickly and lead to some debt and exchange rate risks storms. From now on, what is waiting for Vietnam's economy and financial markets may be tremendous waves.
Vietnamese currency
Just after the Federal Reserve raised the federal benchmark interest rate range for the third time in a row at the September interest rate meeting, and then a group of Federal Reserve governors issued a signal of over-radical interest rate hike expectations, the Vietnamese central bank urgently raised 2,100 basis points for the first time with a strength far exceeding market expectations after two years to cope with higher inflation and the increase in financial market risks, and reiterated that "the bank is willing to sell US dollar reserves to meet local market demand."
Vietnam inflation data changes
Although Vietnam's economic growth rate and export data in the first two quarters of 2022 are impressive, mainly due to the retail sales and return of tourism brought about by the improvement of the labor market, the current world economy is developing in a low state and financial conditions are tightening, which will bring greater inflation and demand pressure to Vietnam.
For example, the rise in the possibility of a recession in the United States may reduce demand for Vietnamese goods. To make matters worse, high inflation in European and American countries has begun to affect Vietnam's domestic production activities and is driving inflation soaring, which is a major challenge for Vietnam's economy and financial markets, while also requiring the solution to the risk of non-performing loans.
BWC Chinese website financial team noticed that in recent years, Vietnam seems to have suddenly become an economic black hole. It is mobilizing the whole country to start the "World Factory" and "Industry 4.0" plans, spared no effort to absorb related resources such as capital, debt, technology, manufacturing companies and even talents from the United States.
However, at present, unfavorable conditions such as the return of the US dollar, soaring financing costs, and difficulties in raw materials and commodity supply chains may have a long-term impact on the financial market after rising inflation, and will have a negative impact on many Vietnamese companies.
DBS Bank financial experts said that Vietnam has to raise interest rates urgently, coupled with global risk aversion sentiment, is expected to pose multiple threats to Vietnam's financial market. This downside risk will continue until 2023 and will affect all aspects of Vietnam's economy, which in turn increases financing costs and may lead to the withdrawal of international capital.
Especially in the United States, with multiple economic pressures such as high inflation, soaring debt costs and high local manufacturing costs, the United States will start a process of harvesting the black holes of Vietnam's economic and financial debt markets in order to pass on its own debt and inflation risks. In particular, Vietnam's foreign debt expansion is faster and has been listed by international institutions as one of Southeast Asia's countries that most need to consolidate their finances.
The explanation of zero hedging on financial websites is that the core crux of Vietnam's financial fragility is to fall into the black hole of the US dollar debt trap and want to exchange interests with Wall Street Group. However, Vietnam's foreign reserves are carrying nearly 70% of external debts, accounting for nearly 70% of GDP. As of September 16, the total debt of banks increased by 10.47% compared with the end of 2021, and credit growth will reach 14%.
Vietnam's foreign debt share trend
This shows that the high growth of Vietnam's economy in the past and the economic miracle expanded its growth by accumulating risky loans and foreign debts. They are all accumulated by huge US dollar debts. This will intensify the volatility of Vietnam and squeeze out international investment in the process of the United States starting to harvest Vietnam.
In response to this, research firm FocusEconomics said that Vietnam basically experiences an economic crisis every 10 years, which will become clearer in the context of the Vietnamese central bank's unexpected interest rate hike of the Federal Reserve on September 22, because Vietnam does not have a broad foreign reserve moat.
data shows that as of July, Vietnam's foreign exchange reserves have dropped to US$101.4 billion (IMF released its report on August 22). This will soon be exhausted in order to defend the stability of the exchange rate hikes by the Federal Reserve and will not change in the short term.
This shows that Vietnam's debt repayment costs have begun to increase exponentially, and the default risk soars, and it is very likely that the wealth will be harvested by US capital, which makes Vietnam's stock, bond and foreign exchange markets have a risk of bursting. This will become more obvious in the context of the crisis in Europe and the economic and financial markets, because most of the profits of Vietnam's manufacturing industry are in the hands of European and American manufacturers, which also causes a large number of wise investors to withdraw from the Vietnamese market in advance.
According to the Vietnam Express report on October 4, due to strong selling pressure, the Vietnam VN index fell 4% again on October 3 to 1086.51 points. The Vietnam index reported its largest single-week decline since May. Analysts said that under the current environment, the financial market is very likely to continue to revaluate.
This has caused international investors with a sensitive sense of smell to quietly withdraw from Vietnam. Within the five months ended September 30, foreign investors have net sold as much as 968 trillion Vietnamese dong in advance (of which 210 trillion dong was sold in September alone), retreating from the Vietnamese market will not return, almost 4.9 times that of the same period in 2021.
Vietnam currency trend in September
Considering that Vietnam's limited foreign reserves can no longer cope with the sudden rise in US dollar lending costs, it is likely to become a "sacrilege" who will be harvested by the United States after the aggressive interest rate hikes by the US dollar and the recession of the US economy.
Although Vietnam has been actively carrying out reforms in many aspects and obtaining some impressive economic data, and has a rich young labor population dividend, Vietnam's economy is still a country dominated by low-end manufacturing, especially hindered by weak governance of small and medium-sized enterprises, insufficient infrastructure and digital connection gaps.
One of the current major characteristics is that the external dollar has high debt, mainly agricultural economy, relying heavily on foreign capital, and relying on low-end manufacturing to support the economy. The added value is not large. Agriculture accounts for 30% of Vietnam's GDP, and the agricultural population accounts for 80% of Vietnam's total population. Most workers engage in occupations related to the ocean.
Vietnamese shrimp farmers
At the same time, Vietnam's economic system has been transforming slowly. In the current environment where Vietnam's land prices have surged, price growth and raw materials are highly dependent on foreign markets, the country's labor costs are increasing by nearly 10% to 20% each year, which is twice that of Laos and Myanmar . The investment in investment in building factories will take many years to recover costs and further compress the company's profit expectations.
analysis believes that in the era of increasing economic uncertainty risks and information intelligence, the sustainability of Vietnam's economic model is not strong, which will have a negative impact on many foreign companies investing in Vietnam. Based on this, the analysis believes that Vietnam's economy may have a risk of recession for 20 years.
Bain Vice President Gerry Mattios said that Vietnam cannot be the next world factory because of lack of infrastructure and many factories are staggering. According to the explanation of the Minister of Planning and Investment, if Vietnam does not catch up with the Industry 4.0 train, the real gap between Vietnam and other countries will become wider and wider.
As a result, the Vietnamese authorities approved the document "Foreign Investment Cooperation Strategy for 2021-2030" as early as June, aiming to attract high-tech and high-value-added investment projects to change the dilemma of relatively low added value of their manufacturing industry, but the effect is not ideal. According to a report released by the Vietnam Foreign Investment Agency on September 18, Vietnamese enterprises only invested about US$460 million in total investment in foreign companies in the first eight months of this year, a year-on-year decrease of 32.7%.
In response to this, Ngo Tri Long, former director of the Price Market Research Institute of the Ministry of Finance of Vietnam, said that the biggest risk facing Vietnam's economy is ineffective growth policies, which only pursues investment quantity and does not pay attention to investment efficiency and quality, which leads the country to fall into the US dollar debt trap. There is a possibility that the Vietnamese economic miracle will be revealed. (End)
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