Jan 7, 2011
Macquarie Capital Securities tells CNBC's why they are bullish on Vietnam.
Interestingly, on Sept 1st 2010, I highlighted that the devaluation of the dong has increased the differential between the global and Vietnamese gold price. This has triggered local jewelers such as PNJ to boost jewelry and bullion exports as spot gold internationally is priced higher than Vietnamese gold. Exports are expected to make up over 10% of PNJ revenue this year as management has stated that they will rely on exports to support top line sales growth.
Note on Gold: The fundamental behind gold or any other non-interest bearing asset is the excess of inflationary expectations over short-term holding costs. This is best measured by subtracting the annualized U.S Ten Year TIPS breakdown rate by the three month Overnight Index Swap rate (a strip of federal funds). The difference between the two will indicate how much we expect an inert asset to rise if there’s no change in its supply/demand balance. As gold trades in a continuous global market the same net inflation expectations variable can be demonstrated for other currencies. Since Vietnam is closer to Hong Kong in time than to any other major gold market, we should expect Hong Kong gold converted into VND to behave similarly with a correlation of over 90%. Hence , we can trade local and international gold mechanically from net U.S. inflation expectations.