Executive Education Programs

Like a lot of developing countries in Asia (and beyond), Vietnam is struggling with high inflation. It has also seen a rather alarming increase in its trade deficit over recent months, prompting some foreign pundits to speculate whether the local currency will have to be devalued in response. Not surprisingly, Hanoi is adamantly opposed to such devaluation, and instead has opted for the standard policy response of monetary tightening. Vietnam currently has the highest interest rates in East Asia, if indeed one can access debt capital at all, as banks struggle with fragile loan portfolios. This rise in interest rates, along with a slowdown in government spending on big ticket investment projects, should help cool an economy that had got ahead of itself and was clearly over-heating.

But it will not be easy, as the central bank and finance ministry try to chase after runaway prices, some of which – such as staples like petrol and food – they have little or no control over, and monetary tightening will have nil impact. Two ratings agencies have recently revised down their outlooks (but not their ratings) for Vietnam, and investor sentiment towards the country has become more somber than the avid zeal we saw in 2006-2007. The equity market indices are around 60% down on their highs of March 2007, and the property market has virtually frozen. Until a recent clampdown by the government, foreign exchange counters were quoting Dong to greenback rates that diverged up to 15% from the official rate.

Little wonder that: most foreign portfolio investors have remained on the sidelines, waiting for the economic clouds to clear; some foreign direct investors have been considering whether to slow down or scale back their projects; and local equity investors in particular seem to have thrown in the towel completely. More than 85 brokerages have been established in Vietnam since the stock market opened in 2000, eager to serve the burgeoning demand of retail investors. That is roughly one brokerage house for every three listed firms in the country. Even so, the trading floors of many brokers were packed to capacity in late 2006 and early 2007, as punters watched the screens with avid attention. Today, most brokerages are eerily quiet, as punters got weary of scouring all the red figures each day.