The financial markets in Vietnam, Asia’s fastest-growing economy, are in an alarming downturn as a crackdown on real estate loans, a declining currency and rising interest rates put pressure on banks and shake confidence.
The Vietnamese dong and the benchmark stock index are heading for their worst annual performance since the 2008 financial crisis, with only the stock markets of Hong Kong and Russia set to lose more globally this year.
The sale, moving from real estate stocks and bonds to the broader market, has soured what foreign fund managers had touted as a promising post-COVID bet on a country drawing manufacturing investment from companies like Apple and Samsung.
Investors remain optimistic about the Vietnamese economy, which the International Monetary Fund forecasts will continue to be one of the fastest growing in Asia next year.
“It doesn’t break, but it takes a lot of pressure,” said Mohamed Faiz Nagutha, ASEAN economist at Bank of America Securities, referring to the exchange rate and the country’s economy in general.
“It can be a tough six months that Vietnam has to endure,” he said. “There’s more pressure that we think will happen in the near term and they will probably have to devalue the currency again or raise interest rates again.”
Market concerns are centered on the twin blow of an ever-growing crackdown on corruption afflicting the real estate industry, gripping prominent businessmen, brokers and developers, freezing the debt market that fueled their rise.
The State Bank of Vietnam (SBV) is scrambling to raise its benchmark rate by 200 basis points in just over a month as it tries to catch up with global gains.
It loosened the shackles of the currency, which promptly fell 4 percent last month to a record low, the strongest monthly decline in more than a decade, and a move analysts attribute to the outflow of foreign investors as the country consistently runs a trade surplus. .
It has also placed the country’s fifth largest commercial lender, Saigon Joint Stock Commercial Bank (SCB), under surveillance after a run on its deposits last month.
Officials have blamed tight credit and the currency’s decline for fuel supply problems in major cities this week.
‘FAST AND FURIOUS’
The epicenter of investor pain has been the real estate sector and, in particular, its share of a $24 billion corporate bond market that has exploded, with official encouragement, after a banking crisis a decade ago revealed over-reliance on loans. .
Pressure is mounting as 375 trillion dong (15 billion dollars) in real estate debt matures by 2025, according to the National Assembly Economic Committee, and authorities have placed restrictions on its refinancing.
“It has grown very fast and furiously,” said Trinh Nguyen, emerging Asian economist at Natixis, calculating that its value had risen from 2 percent of gross domestic product in 2018 to 15 percent in 2021 — mainly thanks to debt raised by real estate companies. have entered into.
“The SBV is trying to prevent this sector from overheating too much,” she says.
Adding to the tension was the arrest last month of real estate mogul Truong My Lan, chairman of Ho Chi Minh City-based developer Van Thinh Phat, for alleged fraud in the bond market.
Its suspected ties to SCB sparked the run on deposits, as well as a widespread stampede to pay off real estate company debt, and sell into the government bond and stock market to cover losses.
Other banks may be affected by the tightening of the corporate bond market, but analysts believe the risks to the banking sector are limited.
“The banking industry as a whole has low exposure to corporate bonds,” said Ho Chi Minh City Securities Corporation, a stock brokerage and investment bank.
It noted that outstanding non-bank corporate bonds made up about 8 percent of total credit in mid-October.
Neither Nguyen from Natixis nor Nagutha from Bank of America expects a crisis. Both are positive about the long-term gains of a credit squeeze and many foreign investors are hopeful.
“Economic data is still good…I think at this level, given the market decline, it looks interesting (and) even if it weakens further I’d add,” said Sat Duhra, who manages a dividend fund at Janus Henderson investors.
Patrick Chang, chief investment officer for equities at Principal Southeast Asia, called Vietnam his best investment idea for 2023, with price cuts making it more attractive.
Still, Lan’s arrest and the SCB event caused “panic,” said one fund manager, who requested anonymity due to the sensitivity of the subject, and a spike in interbank rates up to a decade high around the time of Lan’s arrest has uneasy memories. revive past crises.
“We expect uncertainty over interest rates, the crackdown on corporate bond issuance and weak earnings growth will continue to weigh on market sentiment,” analysts at Maybank said on Wednesday (Nov. 2).
Source: Reuters/st
