"Feder has always been good at using the loose and tight dollar cycle to attack fragile economies, just like a group of wildebeest is crossing the river. The lions will pick young and weak, while the whole herd of wildebeest will continue to move forward." Investment manager Patricia accurately described for us that the Fed carefully planned the phenomenon of slicing currency wool in multiple economies around the world based on its own economic needs. At present, the financial markets in Vietnam and India are in such a tremendous wave.
After the Federal Reserve raised interest rates for the third time in September's interest rate meeting, the Vietnamese central bank urgently raised interest rates by 100 basis points for the first time with a force exceeding market expectations after two years to cope with the increase in inflation and financial risks.
Although Vietnam's economy achieved impressive growth rates in the second quarter of this year, thanks to the improvement of the labor market, retail sales and the return of tourism, under the current low global economic development environment and tightening of financial conditions, it will undoubtedly bring greater inflation and demand pressure to Vietnam.
A flooded street in Ho Chi Minh City
To make matters worse, the possibility of an economic recession in the United States may reduce the demand for Vietnamese goods after the rise in the possibility of an economic recession. At present, the high inflation in the United States has begun to be passed on to Vietnam and affect Vietnam's domestic production activities. This is a major challenge for Vietnam. At the same time, a series of difficulties restricting economic development such as non-performing loan risks and backward infrastructure need to be solved. In addition, the current adverse factors such as the return of the US dollar, soaring interest rates, raw materials and commodity supply chain difficulties are also having a negative impact on Vietnamese companies and may lead to the withdrawal of international capital.
Especially under the interweaving of multiple economic pressures such as high inflation, soaring debt costs and high local manufacturing costs, the United States will start the process of harvesting the black holes of Vietnam's economic and financial debt markets in order to transfer its own debt and inflation risks. As of September 16, Vietnam's total bank debt increased by 10.47% from 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 fluctuations in the Vietnamese market and squeeze out international investment in the process of the United States starting to harvest Vietnam, because Vietnam does not have a broad foreign reserve moat.
In this regard, research firm FocusEconomics said that Vietnam's economy basically experiences a crisis every 10 years, and the core reason why Vietnam's finance is fragile is that it falls into the black hole of the US dollar debt trap and wants to exchange interests with Wall Street Group. However, Vietnam's foreign reserves are burdened with nearly 70% of the external debts that account for nearly 70% of GDP. As shown in the figure below, Vietnam's foreign exchange reserves are rapidly disappearing and have now dropped to US$101.4 billion.
This shows that Vietnam's default risk soars, and it is very likely that the United States will use the advantage of the US dollar to harvest wealth. 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.
data shows that on October 6, the Vietnam VN index continued to decline, falling more than 2%, while on October 3, the Vietnam VN index had fallen sharply by 4%, setting the largest single-week decline since May. has caused some international investors who pursue risk-returns to quietly withdraw from Vietnam.
According to data cited by the Vietnam Express, as of 5 months ended October 3, financial securities assets of up to 968 trillion Vietnamese dong were net sold (of which 210 trillion dong were sold in September alone), almost five times that of the same period last year, causing a large number of foreign investors to withdraw from the Vietnamese market and no longer return.
In this regard, 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 invalid growth policies, which only pursues the quantity of investments, rather than paying attention to investment efficiency and quality, which has led to the country falling into the US dollar debt trap and the Vietnamese economy has the possibility of a recession. But things didn't end here.
analysis shows that in recent years, the risks of the Indian financial market, which spares no effort to absorb capital, debt, technology, manufacturing companies and even talents from the United States, are also rising sharply, causing the proportion of foreign debt and GDP to continue to rise, and will have a negative impact on many Indian companies.
According to a report released by IMF in September, India has the highest debt ratio among all emerging markets, and India's foreign debt has expanded faster. As of the second quarter of fiscal year 2022, India's general government debt has surged to 76.5% of GDP, and the highest level since 2018. This series of signs suggest that India may recession due to debt difficulties, and even the Central Bank of India has to admit that they can do little to control the decline of the Indian rupee.
Data released by the Central Bank of India on September 29 showed that as of September 16, India's foreign exchange reserves were US$545.7 billion, down 15% from the same period last year, setting a new low in nearly three years. This shows that with India's loss of 15% of its foreign reserves, India still cannot prevent the continued decline of the stock, bond and foreign exchange market, which also caused a large number of wise investors to withdraw from the Indian financial market in advance.
According to the latest data from the Indian National Securities Depository Co., Ltd. on October 5, foreign institutional investors have net sold about 2 trillion rupees of financial assets since 2022, which is the highest annual withdrawal in at least 20 years. This has also caused India's 10-year Treasury bond yield to continue to rise to 7.4465% on October 6, and was sold by the market.
This further shows that India is also trapped in the black hole of US dollar debt like Vietnam. Once investors withdraw and US dollar interest rates soar, the Indian economy may face the risk of recession, and it does not achieve continuous economic growth as expected by some international institutions that "pinned" the Indian economy.
In this regard, Chief economist of Royal Bank of Canada pointed out that if the US economy officially enters a recession in 2023, it will intensify the recession of Vietnam and India. Considering that Vietnam and India's limited foreign reserves can no longer cope with the sudden rise in US dollar borrowing costs, it is very likely to become a "sacrilege" who will be harvested by the United States after the aggressive interest rate hike by the US dollar and the recession of the US economy. (End)
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