Vietnam's pragmatic Doi Moi
Comment of the Day

September 23 2013

Commentary by Eoin Treacy

Vietnam's pragmatic Doi Moi

Thanks to a subscriber for this report by Deutsche Bank focusing on Vietnam. The full report is posted in the Subscriber's Area but here is a section
Vietnam has gone through a couple of boom and bust economic cycles since its entry into the WTO in 2007, with the global financial crisis amplifying the volatility. Meanwhile, the authorities have prioritised stability over growth and now we think they are ready to take Vietnam one step further in development, by taking on broader structural reform and liberalising the economy. We think their efforts will be more comprehensive, not restricted to only banks but also including SOEs (gradually) and the private sector. As Vietnam develops and integrates further into the global economy, we see it increasing its support for fair competition and opportunities for all economic agents, which will be positive for the non-state (private) sector. Naturally, a removal of restrictive barriers to business and investment activities would effectively level the playing field and make the business environment friendly for all types of enterprises – SOEs, non-state enterprises and FDIs alike – and better improve the link between FDIs and local suppliers.

Eoin Treacy's view A great deal of commentary has focused on the weakness of Asian currencies over the last year so it is worth considering the exceptions to this consensus since they are unlikely to be subject to the same forces. In this regard Vietnam is another standout because while the Dong was one of the weakest currencies in the world between 2008 and 2011 it has since stabilised and continues to hold in the VND21,000 areas. Some of the reasons for adopting a more disciplined attitude to the currency were to temper inflation and reduce demand for gold among the wider population.

Following an impressive rebound from the 2009 lows, the stock market index held a progression of lower rally highs until 2012. It has been ranging mostly above the 200-day MA for much of this year and is currently testing that area once more. A sustained move below 460 would be required to question potential for higher to lateral ranging.

The London listed Vietnam Opportunity Fund is currently trading at a discount to NAV of 29% and found support last week in the region of the 200-day MA. A sustained move below $2 would be required to question medium-term recovery potential

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