VietNamNet Bridge – The dong/dollar exchange rate stabilization in the last two months and the positive macroeconomic signs have both lured the foreign capital back to the stock market.
It is expected that many foreign investments close funds are closing this year. Analysts once warned about the possible capital withdrawal wave, in which tens of trillions of dong would flow out of Vietnam.
However, the analysts have become more optimistic now, after they can see foreign capital returning with cash flowing into big shares.
After the sharp devaluation of the dong by 9.3 percent in February 2011, foreign investors kept the low trading volume. However, they have unexpectedly returned, making a net purchase volume of 1135 billion dong in the first three weeks of February 2012. Prior to that, in January, foreign investors had the net sale volume of 2 trillion dong, mainly because of the ANZ’s deal of transferring its Sacombank stakes to Eximbank.
The recent net purchase in the last few weeks and the positive forecasts about Vietnamese economies by big international institutions such as Citigroup, Dragon Capital, and Manulife Asset Management ,have raised a debate among investors and experts.
It is too early to say that foreign capital is returning. However, it is obvious that the foreign investors buy and sells shares following the changes in the macro economy.
The biggest positive signal of the national economy is the stabilization of the Vietnam dong.
According to the State Bank of Vietnam, the interbank exchange rate has been stabilized at 20,828 dong per dollar since December 24, 2011. The bank has also said that the liquidity of the banking system has been improved since January 2012. Meanwhile, commercial banks continue selling foreign currencies to the State Bank.
The stabilized interbank exchange rate has allowed commercial banks to lower the dollar prices. On January 18, 2012, commercial banks all lowered the quoted dollar price from 21,036 dong per dollar to 20,900 dong. In the week from February 20 to February 24, commercial banks sold dollars at 20,810-20,820 dong per dollar. On February 28, Vietcombank’s quoted prices dropped sharply to 20,790 dong per dollar (buy) and 20,850 dong (sale).
The stable exchange rate has helped restore the confidence of investors, including foreign investors.
In the report released on February 22, Citigroup advised investors to keep a long term vision about Vietnam’s economic prospects. In the short term, they should keep a close watch over the decrease of the inflation, the merger of commercial banks and bad debt ratio.
As such, the exchange rate fluctuation, which was always the issue of the biggest interests of foreign institutions, was not mentioned in the latest report. The State Bank of Vietnam has announced it is striving to curb the dong/dollar exchange rate at 3 percent in 2012. Meanwhile, with what is happening, the exchange rate would be no longer their worry.
Regarding the inflation rate, Citigroup thinks that the inflation rate would be curbed at the one digit level.
According to EPFR Global, an international data provider, the cash flow tends to return to the newly emerging markets. Since early 2012, investment funds in newly emerging markets have raised 11.3 billion dong in funds – a satisfactory figure.
International investors seem to become tired of the public debt crisis in Europe and they tend to accept more risks with the investment deals in newly emerging markets, including Vietnam.
The government of Vietnam understands well that many investment funds would terminate their operation in 2012 after the fund establishment boom period in 2002-2004, and that it needs to take actions to encourage foreign investors to stay in Vietnam.
In the latest news, Vietnam has issued a new legal document guiding the establishment of open funds, paving the way for the quick forming up of open funds to replace the close funds