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Building A Consensus: Prospects for a Stable VND

1.   2010 Background

·          November and December 2010 witnessed intense depreciation pressure for the VND because of:

  • Speculation-driven rises in domestic gold prices prompting investors to switch away from the VND to gold.
  • Rising inflation coupled with the Vinashin Phenomenon undermining local investor confidence in the VND’s value.
  • Low level of FX reserves and SBV’s obscurity causing FX speculation.
  • A lack of portfolio investment from overseas investors in  the local bond and stock markets also implies limited inflows supporting the VND.
  • F X loans from 1H2010 reaching maturity and surge in consumer goods imports during 4Q2010.

·        Increased gap between official and black market rates approaching 10% (VND 2,000), compared to the 12% gap in Nov 2009,    equivalent to a 5.4% depreciation.

2.  2011 Prospects

While depreciation is expected to continue in 2011, the magnitude is likely to be less than what the parallel market is currently anticipating. In other words, the exchange rate is anticipated to stabilize during the course of 2011, ending the year at 20,800 from the current level of 19,500 (Standard  Chartered Bank, Vietnam – Time To Act, January 2011)

It is expected that authorities will opt for an orderly depreciation and move in steps, with the next move possibly after Tet.

·                Facing current inflation challenges, one can expect to see tight monetary policy:

  •   Interest rates will be more market-determined towards an upward trend.
  •  Once inflation has been to a certain extent tackled, the amount of USD currently hoarded by Vietnamese will be partly released    back to circulation.
  •  CAR to be increased from 8% to 9% (Circular 13 and Circular 19).
  • Credit growth is targeted at 23% for 2011 (compared to the targeted 30% and actual 37.7% of 2010) .


        Gold fever to subside as the government resumes issuing quotas for gold imports till end of February while levies a 10% export tax on  gold in an effort to recreate balance between the  two. Higher-than-expected capital inflows from various sources (FDI, FII, ODA, remittances and foreign borrowing) at the end of 2010 totaling US$ 24.5bn.  The inflows resulted in a BOP’s capital accounts surplus in 2010 which can compensate for a deficit in the current account.


SBV’s FX reserve  increased from US$14.1bn (Sep 2010) to US$15.2bn (Dec 2010), encourage more confidence in the VND among market participants. The 11th Party Congress saw a smooth transition of party leadership with Prime Minister Nguyen Tan Dung  to be  appointed  to  another five-year term, representing a good opportunity for the central bank to re-establish its credibility in maintaining price stability.

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Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital.  (read more)

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