Chicago Fed Chairman Evans said on October 11 that it is expected that by early 2023, the Federal Reserve's policy interest rate will be slightly higher than 4.5%. After the hike of rate hike, the interest rate will be cut immediately, and the restrictive monetary policy will be maintained for a period of time to suppress inflation at the target level. Subsequently, the second-ranked Federal Reserve Brainard said that hikes will take time to reduce inflation, which has taken into account the spillover impact of rising interest rates and strengthening the dollar.
On October 11, the Federal Reserve's interest rate observation tool showed that the probability of the Federal Reserve raising interest rates for the fourth consecutive rate meeting held in November was 91.5%, higher than the 85.5% before the release of the US September non-farm report on October 7, especially considering that the market expects the CPI data released on October 13 to climb again.
After the Federal Reserve raised interest rates for the third consecutive 75 basis points in the September interest rate meeting, the Vietnamese central bank urgently raised 100 basis points for the first time with a force exceeding market expectations to cope with the increase in inflation and financial risks.
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". From now on, what is waiting for Vietnam's economy and financial markets may be tremendous waves.
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 the return of tourism brought about by the improvement of the labor market, the current world economy is developing in a low state and the tightening of the monetary environment will bring greater inflation and demand pressure to Vietnam.
For example, the rising possibility of a recession in the United States may reduce demand for Vietnamese goods. At present, high inflation in European and American countries has begun to affect Vietnam's domestic production activities and is driving inflation to soar, which is a major challenge for Vietnam's economy and financial markets, and it also needs to solve the risk of non-performing loans
In this regard, the governor of Vietnam's central bank said that while controlling inflation, promoting economic growth is a challenge for Vietnam. Data shows that Vietnam's CPI rose by 3.6% year-on-year compared with the end of last year, and the average of the first eight months of this year was 2.86%, which is very close to the country's 4% warning value set.
According to data from Refinitiv Eikon, as of October 7, Vietnamese Dong plummeted for eight consecutive days. The exchange rate of Vietnamese Dong to the US dollar hit a record low of 23,700 in at least 1993. 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.
Vietnam's foreign debt share trend
In fact, the financial team of BWC Chinese website noticed that in recent years, Vietnam seems to have suddenly become an economic black hole, and is mobilizing the whole country to start the "World Factory" and "Industry 4.0" plans, spared no effort to absorb capital, debt, technology, manufacturing companies and even talents from the United States.
But at present, unfavorable conditions such as backward infrastructure, US dollar return, soaring financing costs, raw materials and commodity supply chain difficulties may have a long-term impact on the financial market after rising inflation, and will have a negative impact on many Vietnamese companies.
Ho Chi Minh City A flooded street
HDBS Bank Financial experts said that at present, Vietnam has to raise interest rates urgently, coupled with global risk aversion sentiment, it is expected to pose multiple threats to the Vietnamese financial market. This downside risk will continue until 2023 and will affect all aspects of Vietnam's economy.
Especially under the interweaving of multiple economic pressures such as high inflation in the US economy, soaring debt costs and high local manufacturing costs, the United States will start the process of harvesting the black hole of Vietnam's economic and financial debt market in order to transfer its own debt and inflation risks.
analysis shows that the core crux of Vietnam's financial fragility 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 carrying nearly 50% of external debts, accounting for nearly 50% of GDP. As of October 6, the total debt of banks increased by 10.49% compared with the end of 2021, and credit growth will reach 14.8%.
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 September, Vietnam's foreign exchange reserves have dropped to US$101.4 billion. This will soon be exhausted in order to defend the exchange rate stability in order to defend the exchange rate, and will not change in the short term.
Vietnamese foreign reserve trend
This indicates that Vietnam's debt repayment costs have begun to increase exponentially, and the default risk soars, and it is very likely that 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 10, due to strong selling pressure in Vietnam, Vietnam's stock market became the worst-performing stock market in the world with a drop of 8.5% in the week of October 8, marking its biggest single-week decline since May. In the past four weeks, the Vietnam VN index fell 16.67%, of which 30 largest stocks fell 18.51% during this period.
Since this year, the valuation of Vietnamese stock market has fallen to a low of more than ten years, as investors avoid stocks and seek risk-free assets. On October 7, Vietnamese stock index VN became the index with the largest decline in Asia.
This also makes international investments with a keen sense of smell quietly withdraw from Vietnam. Within the six months ended October 8, foreign investors had net sold out financial securities assets of up to 1200 trillion Vietnamese dong in advance, and retreated from the Vietnamese market and did not return, almost five times that of the same period in 2021.
Considering that Vietnam's limited foreign reserves can no longer cope with the sudden rise in US dollar borrowing costs, it is likely to become a "sacrilege" who will be harvested by the Federal Reserve after the aggressive interest rate hike of the US dollar and the US economy recession. This also shows that the Vietnamese economy can no longer avoid being harvested by US dollar capital.
Cat Lai Pier in Ho Chi Minh City, Vietnam
Although Vietnam has been actively carrying out reforms in many aspects and obtaining some outstanding economic data, and has rich young labor population dividends, Vietnam's economy is still a country dominated by low-end manufacturing. One of the major characteristics at present 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.
At the same time, Vietnam's economic system has been transforming slowly. In the current environment where Vietnam's land prices have risen, 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.
Vietnam has a rich young labor force demographic dividend
Analysis believes that in the era of increasing economic uncertainty risks and intelligence, the sustainability of Vietnam's economic model is not strong, which will have a negative impact on many foreign companies investing in Vietnam. Bain Vice President Gerry Mattios said that Vietnam cannot become the next world factory because of lack of infrastructure and many factories are staggering.
We noticed that although the Vietnamese authorities approved investment projects aimed at attracting high-tech and high value-added investment projects as early as June to change the "Foreign Investment Cooperation Strategy for 2021-2030" document, which has a relatively low value-added value in manufacturing industries, the results are not ideal. According to a report released by the Vietnam Foreign Investment Agency on September 18, Vietnamese companies 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 this regard, Ngo Tri Long, former director of the Price Market Research Institute of the Ministry of Finance of Vietnam, said on October 7 that the biggest risk facing Vietnam's economy is an invalid growth policy, which only pursues the quantity of investment, rather than paying attention to investment efficiency and quality. If the United States, as Vietnam's main export market, falls into recession in 2023, then it will intensify the recession in Vietnam.
According to the warning of the Minister of Planning and Investment of Vietnam, although Vietnam has the advantages of labor costs, taxes and location dividends, if Vietnamese manufacturing cannot catch up with "Industry 4.0", then the real gap in manufacturing with other countries will become increasingly widening. (End)
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