Vietnam: Devalues currency to boost exports as stocks reach bear market Today at 5:19 am
VNStockNews.com - Vietnam devalued its currency for the third time since November, moving to reverse a slump in exports that helped to drive stocks close to a bear market.
The dong slid to a record-low 19,425 per dollar at 9:28 a.m. in Hanoi after the central bank lowered the reference rate by 2 percent to help control a trade deficit. The Ho Chi Minh City Stock Exchange’s VN Index dropped 1.6 percent to 455.96, extending its decline from the May peak to 17 percent, near the 20 percent that would indicate a bear market.
A weaker currency may boost exports and demonstrates the government’s focus on boosting economic growth over further easing inflation, said Prakriti Sofat, a Singapore-based economist at Barclays Capital. Prime Minister Nguyen Tan Dung said in June the economy may expand as much as 7 percent this year, beating the 6.5 percent target, from 5.3 percent in 2009.
“The main reason for the central bank’s move is to balance onshore foreign-exchange demand-and-supply and to support exporters,” Sofat said. “Vietnam largely exports low value- added goods and typically competes on prices.”
Vietnam’s trade deficit widened in July from the previous month on falling exports. The shortfall reached $1.15 billion from a revised $742 million in June. For the seven months through July, the gap was $7.4 billion, almost twice the figure for the same period last year.
Low Valuations
The Ho Chi Minh City Stock Exchange’s VN Index, Southeast Asia’s worst-performing benchmark gauge this year, has tumbled 61 percent from the record 1,170.67 in March 2007 as the global financial crisis prompted a retreat from developing nations. Declining prices drove stocks on the VN Index to 10 times reported earnings, the cheapest in Asia apart from Pakistan.
Barclays Capital is maintaining a year-end forecast for the dong to trade at 19,500, the upper end of the 3 percent band either side of the 18,932 per dollar reference rate, Sofat said in a phone interview today. Governor Nguyen Van Giau on Feb. 11 depreciated the dong by lowering the reference rate 3.4 percent to 18,544.
“The central bank still has a bias to support growth, especially as credit and loans growth have been relatively weak,” Sofat said. “The central bank has been encouraging local banks to reduce lending rates and now the weaker dong will help support exporters.”
Economic Growth
The economy expanded 6.4 percent in the three months through June, compared with 5.83 percent in the first quarter. Inflation cooled for a fourth month in July, to 8.19 percent, the General Statistics Office in Hanoi reported July 24.
“The weaker currency will likely add to imported price pressures,” Sofat wrote separately in a research note yesterday.
Vietnam is preparing a “rapid and sustainable” development strategy for 2011 to 2020 that will lead to average gross domestic product growth of 7 percent to 8 percent a year for the period, Prime Minister Dung said in Hanoi today
VNStockNews.com - Vietnam devalued its currency for the third time since November, moving to reverse a slump in exports that helped to drive stocks close to a bear market.
The dong slid to a record-low 19,425 per dollar at 9:28 a.m. in Hanoi after the central bank lowered the reference rate by 2 percent to help control a trade deficit. The Ho Chi Minh City Stock Exchange’s VN Index dropped 1.6 percent to 455.96, extending its decline from the May peak to 17 percent, near the 20 percent that would indicate a bear market.
A weaker currency may boost exports and demonstrates the government’s focus on boosting economic growth over further easing inflation, said Prakriti Sofat, a Singapore-based economist at Barclays Capital. Prime Minister Nguyen Tan Dung said in June the economy may expand as much as 7 percent this year, beating the 6.5 percent target, from 5.3 percent in 2009.
“The main reason for the central bank’s move is to balance onshore foreign-exchange demand-and-supply and to support exporters,” Sofat said. “Vietnam largely exports low value- added goods and typically competes on prices.”
Vietnam’s trade deficit widened in July from the previous month on falling exports. The shortfall reached $1.15 billion from a revised $742 million in June. For the seven months through July, the gap was $7.4 billion, almost twice the figure for the same period last year.
Low Valuations
The Ho Chi Minh City Stock Exchange’s VN Index, Southeast Asia’s worst-performing benchmark gauge this year, has tumbled 61 percent from the record 1,170.67 in March 2007 as the global financial crisis prompted a retreat from developing nations. Declining prices drove stocks on the VN Index to 10 times reported earnings, the cheapest in Asia apart from Pakistan.
Barclays Capital is maintaining a year-end forecast for the dong to trade at 19,500, the upper end of the 3 percent band either side of the 18,932 per dollar reference rate, Sofat said in a phone interview today. Governor Nguyen Van Giau on Feb. 11 depreciated the dong by lowering the reference rate 3.4 percent to 18,544.
“The central bank still has a bias to support growth, especially as credit and loans growth have been relatively weak,” Sofat said. “The central bank has been encouraging local banks to reduce lending rates and now the weaker dong will help support exporters.”
Economic Growth
The economy expanded 6.4 percent in the three months through June, compared with 5.83 percent in the first quarter. Inflation cooled for a fourth month in July, to 8.19 percent, the General Statistics Office in Hanoi reported July 24.
“The weaker currency will likely add to imported price pressures,” Sofat wrote separately in a research note yesterday.
Vietnam is preparing a “rapid and sustainable” development strategy for 2011 to 2020 that will lead to average gross domestic product growth of 7 percent to 8 percent a year for the period, Prime Minister Dung said in Hanoi today
