Vietnam’s currency devaluation points to continued “challenges” and it’s too soon to turn positive on the world’s worst-performing stock market this month, Credit Suisse Group AG said.
The central bank this week lowered the reference rate for the dong by 2 percent, the third devaluation since November. Currency reform is “badly needed,” Credit Suisse analysts Dan Fineman and Siriporn Sothikul wrote in a report.
“Cyclically, Vietnam has yet to find the right balance between growth and macro stability,” the analysts wrote. “Structurally, the lack of an independent central bank weakens confidence in the currency and leaves the country prone to overheated imports and inflation.”
Vietnam’s benchmark VN Index dropped 1.7 percent yesterday following the central bank’s decision. The gauge has dropped 7.8 percent this month, the most among 93 indexes tracked by Bloomberg globally.
Following this month’s losses, the index is now valued at 9.6 times estimated earnings, down from this year’s high of 13.5 times reached on March 12. While that’s lower than the average for stock benchmark indexes in Asia outside of Japan, the gauge’s price-to-book value multiple is still the third highest in the region, according to Credit Suisse.
‘A Bigger Discount’
“After sustained stock market underperformance, valuations are looking more appealing than at any time in the past four years but we would like to see them a bit cheaper,” the Credit Suisse analysts wrote. “Given the difficulties of trading, the poor currency outlook and considerable macro risks, we would like to see a bigger discount.”
The most significant risk to Vietnam’s economy in the medium term is its foreign-exchange rate, given that the current account deficit is “still high” and the exchange rate remains “less flexible,” Le Xuan Nghia, vice chairman of Vietnam’s National Financial Supervision Commission, said yesterday in Hanoi.
“The foreign exchange rate is having many potential risks of sudden changes,” Nghia said. “There may be problems of foreign currency liquidity, and if the country isn’t careful, it may have to cope with a shock of foreign currency liquidity.”
The currency yesterday slid 1.1 percent to 19,320 per dollar, a record low. – Bloomberg
The central bank this week lowered the reference rate for the dong by 2 percent, the third devaluation since November. Currency reform is “badly needed,” Credit Suisse analysts Dan Fineman and Siriporn Sothikul wrote in a report.
“Cyclically, Vietnam has yet to find the right balance between growth and macro stability,” the analysts wrote. “Structurally, the lack of an independent central bank weakens confidence in the currency and leaves the country prone to overheated imports and inflation.”
Vietnam’s benchmark VN Index dropped 1.7 percent yesterday following the central bank’s decision. The gauge has dropped 7.8 percent this month, the most among 93 indexes tracked by Bloomberg globally.
Following this month’s losses, the index is now valued at 9.6 times estimated earnings, down from this year’s high of 13.5 times reached on March 12. While that’s lower than the average for stock benchmark indexes in Asia outside of Japan, the gauge’s price-to-book value multiple is still the third highest in the region, according to Credit Suisse.
‘A Bigger Discount’
“After sustained stock market underperformance, valuations are looking more appealing than at any time in the past four years but we would like to see them a bit cheaper,” the Credit Suisse analysts wrote. “Given the difficulties of trading, the poor currency outlook and considerable macro risks, we would like to see a bigger discount.”
The most significant risk to Vietnam’s economy in the medium term is its foreign-exchange rate, given that the current account deficit is “still high” and the exchange rate remains “less flexible,” Le Xuan Nghia, vice chairman of Vietnam’s National Financial Supervision Commission, said yesterday in Hanoi.
“The foreign exchange rate is having many potential risks of sudden changes,” Nghia said. “There may be problems of foreign currency liquidity, and if the country isn’t careful, it may have to cope with a shock of foreign currency liquidity.”
The currency yesterday slid 1.1 percent to 19,320 per dollar, a record low. – Bloomberg