News
Vietnam's Ability to Snatch Orders Amid Currency Crash and 1/3 Stock Plunge
Due to the impact of the Federal Reserve's interest rate hike strategy, Vietnam's financial and economic sectors have encountered significant difficulties.
So far this year, the Ho Chi Minh Index in Vietnam has plummeted from over 1,500 points at its peak to around 1,050 points currently. In just half a year, Vietnam's stock market has seen a decline of 32%, nearly losing one-third of its value.
In just the past couple of days, the Vietnamese dong's exchange rate against the US dollar has once again plummeted, reaching an all-time low.
At the same time, over the past few years, Vietnam's manufacturing industry, which the government has been proud of, seems to have suddenly been hit pause. Orders were still pouring in at the beginning of the year, but now there is a shortage of orders.
Facing the dollar's harvest, can Vietnam's economy escape this ordeal?
01
At present, the inflation in the United States has not seen much change, and there is even a possibility of a rebound.
At the end of September, when the United States announced the PCE price index, we noticed a rebound compared to the previous month.
Advertisement
Then, this month's CPI announcement did not meet expectations, especially the core PCE, which excludes food and energy factors, showed a significant rebound.
In the past, the United States has always attributed inflation to the rise in international energy prices and the continuous increase in food prices as commodities. However, even after removing these two factors, the core inflation still rises, indicating that inflation has spread across the board.At the same time, the overheating of the U.S. economy does not seem to have changed significantly, with the job market remaining very robust and the unemployment rate at a new low in nearly five years. This also gives the Federal Reserve the confidence and reason to further raise interest rates.
Previously, the market predicted that there would be interest rate hikes of 75 basis points in November and 50 basis points in December, but now the forecasts have become more diverse, all suggesting that the magnitude of the rate hikes could be larger. The cumulative interest rate hike by the end of November and December could potentially reach 150 basis points.
02
In this context, Vietnam, which has relied on high debt to achieve economic development in the past, will face a severe crisis.
Since the 2008 subprime crisis, the U.S. has become accustomed to issuing a large amount of bonds to transfer its own economic crisis abroad.
Especially after the outbreak of the COVID-19 pandemic in 2020, the Federal Reserve's balance sheet even doubled in just over two years. At the same time, the Federal Reserve also purchased 40% of the new Treasury bonds issued by the U.S. Department of the Treasury. The over-issued currency continuously flows into other markets, especially emerging markets.
Vietnam has also gained significant benefits in this process, relying on the continuous inflow of funds, Vietnam's manufacturing industry and GDP have achieved rapid growth in recent years.
Driven by funds, Vietnam has continuously seized a large number of orders in the international market. At the beginning of this year, the Vietnamese proudly said that they had too many orders to complete and had to recruit a large number of employees.
Vietnamese media also listed data for comparison, pointing out that Vietnam's export volume exceeded that of Shenzhen.
However, half a year later, Vietnam has a large number of workers unemployed, and orders have also disappeared.However, at the same time, Vietnam's debt levels are also continuously increasing. Currently, the total external debt of Vietnam has reached 175 billion USD, while Vietnam's foreign exchange reserves have decreased, so the proportion of external debt to foreign reserves has further increased to over 170%.
If compared with Vietnam's GDP, although Vietnam's GDP growth has been good in recent years, the growth rate of Vietnam's debt has been even faster. Therefore, the proportion of Vietnam's total debt to the country's GDP is getting closer and closer to the 65% warning line.
03
Using debt to obtain funds for economic development is a common choice for many emerging markets. However, once the debt becomes excessive, especially in the trend of the US dollar's continuous strengthening, the economy may collapse under pressure.
As the exchange rate of the US dollar becomes higher and higher, and the exchange rate of the Vietnamese dong continues to decline, this means that in the future, when repaying debts, Vietnam will face increasingly higher debt repayment costs.
But at this time, the State Bank of Vietnam announced that it would expand the fluctuation range of the Vietnamese dong to 5%, which means holding a more relaxed attitude towards devaluation. This seems to indicate that the State Bank of Vietnam is powerless to prevent the devaluation of the Vietnamese dong, therefore, the market's expectation for a significant further devaluation of the Vietnamese dong is getting stronger and stronger.
In the first half of this year, Vietnam's foreign exchange reserves have decreased to 101.4 billion USD, which is the lowest level in the past 12 years.
As the previous trade surplus gradually turns into a trade deficit. At the same time, the continuous devaluation of non-US currencies. In the future, Vietnam's foreign exchange reserves will continue to shrink.
In this situation, Vietnam indeed does not have enough strength to maintain the exchange rate of the Vietnamese dong.
In this situation, does Vietnam still have the ability to "grab" more production orders?
Leave A Comments