Dau Tu Chung Khoan
The dong/US dollar exchange rate has been under control and fairly stable since the beginning of the year. This has positively affected the market as well as the psychology of foreign investors. Talking about the developments of exchange rate from now until the end of the year, Andy Ho, Managing director of VinaCapital Group said that the new exchange rate mechanism from the early year has helped stabilise the dong and reduce exchange rate risks for international investors. However, this is still the issue that investors are most interested and concerned.
The unofficial exchange rate on the market is about 22,300 dong per US dollar, and the reference rate of SBV has risen by 0.8 percent from the beginning of the year. The selling price of US dollar of banks is currently around 22,340 dong per US dollar. The central rate listed by SBV is 22,011 dong per US dollar, while the exchange rate traded at SBV’s Operations centre is 22,300 dong per US dollar (buying price) and 22,671 dong per US dollar (selling price).
Andy forecasted that the exchange rate will hit 22,700 dong per US dollar in the end of the year, as the US Federal Reserve (Fed) may raise basic US dollar interest rates in the end of the year. However, the interest rate raise of Fed (if any) will be small in amplitude and it will not significantly affect the exchange rate of dong.
Talking about the possibility that foreign investors net sell US dollars in the remaining quarter of the year when Fed increases interest rates thereby creating pressure on dong exchange rate, Andy said that the recent moves of Fed showed that the interest rate increase (if any) will be inconsiderable. Therefore, foreign investors will continue to conduct selling and buying activities in the last quarter of the year due to many reasons, not just due to the impact of Fed’s move. There will be impact on foreign investors if Fed increases US dollar interest rates, but it is difficult to measure the impact and it cannot be said to lead to the increase in net selling activities.
According to Fed’s statement, at the meeting on September 20th and 21st 2016, the majority of members of the (FOMC) believed that implementing the increase of interest rates in 2016 is reasonable. The low inflation rate, differences in the assessment of labour market and consideration on the global economy did not support the interest rate raise in the earlier time. The market has raised the possibility of Fed’s interest rate increase in the end of the year to 70 percent. Investors are expecting a slight adjustment of interest rates while Fed is likely to keep the interest rates unchanged in the meeting to be held in November 2016 before the US presidential election.
According to Andy, the exchange rate in Vietnam has been relatively stable in the first three quarters of the year and the foreign exchange reserves of Vietnam have increased as the State Bank of Vietnam (SBV) acquired more than 11 billion US dollars. However, according to assessment of financial experts, if Fed increases US dollar basic interest rates in the end of the year, the exchange rate and even interest rates of Vietnam will be under pressure.
The dong interest rates are expected to decline, especially lending rates. However, the fact showed that the mobilisation interest rates of banks are difficult to be cut, although the liquidity has been improved thanks to the strong purchase of SBV on US dollars on the open markets without reducing the volume of dong poured into the banking system. The dong interest rates remain a matter of concern, because it is connected to the impact made by Fed’s interest rate adjustment.
According to the managing director of VinaCapital, once the dong exchange rate is stable, interest rates may be further cut. At the same time, when the interest rate level is low, the government can issue additional bonds at low costs and enterprises having needs to raise capital as well as borrow capital can save costs.
Assessing the economic growth of Vietnam in 2016 and 2017, and the ability to attract indirect capital investment of foreign investors of Vietnam, Andy said that the Gross Domestic Product (GDP) growth of Vietnam may exceed six percent in 2016 and 6.5 percent in 2017. Foreign investors are looking to invest in the Southeast Asia. However, since some regional markets such as the Philippines, and Thailand have recently experienced new moves, investors are still watching and have yet to make investment. Therefore, foreign investors are eyeing Vietnam’s market as they see many opportunities.
In fact, not only investors from the Europe and the Americas, Asian investors have invested in Vietnam. Although exchange rate is an issue of interest to investors, it is not the very big concern for them.