Weaker VND feared to cause flight of hot money out of Vietnam
08-09-2015 11:03:20+07:00
Weaker VND feared to cause flight of hot money out of Vietnam
Analysts warned that dollar price fluctuations would prompt foreign investors to withdraw capital from Vietnam. If so, this would put pressure on the exchange rate.
Foreign investors’ net stock sales had reached VND657 billion in seven consecutive trading sessions by the end of last week.
From July 31 to August 21, 2015, according to the Hanoi Stock Exchange, foreign investors’ government bond net sales climbed to VND2.783 trillion.
The foreign investors’ excess of sales over purchases is expected to last a long time.
An analyst commented that foreign investors were more resolute than domestic investors, and would stop losses as soon as they need to do so.
However, he said foreign investors cannot sell securities in large quantities now because of weak market liquidity.
The liquidity of the HCM City Stock Exchange in July and August decreased sharply by 30 percent compared with the first and second quarters of 2015.
There are few bond transactions these days because commercial banks’ liquidity is weak.
Thoi Bao Kinh Te Sai Gon cited a report of a bank’s treasury division as saying that foreign investors may withdraw $2.5-3 billion worth of capital by selling bonds and stocks.
The amount of capital was hot money that flowed to Vietnam prior to July 2015, when the dong/dollar exchange rate was stable, as investors sought profits from the gap in the dong and dollar interest rates.
The capital withdrawal, if it happens, would put pressure on foreign currency supply and demand.
The moves taken by two foreign ETFs (exchange traded funds) – Vaneck VNM and FTSE Vietnam ETF -- which are holding $850 million worth of stocks listed on both the Hanoi and HCM City bourses – have caused special attention from the public.
The price of V.N.M ETF managed by Vaneck has decreased sharply by 15 percent since early August, from $18 per certificate to $15.6 on August 21. It is estimated that more than 1 million fund certificates have been withdrawn in the last three weeks.
The hot money once helped Vietnam in issuing government bonds, easing dong interest rates and helping the State Bank buy more foreign currencies to consolidate foreign exchange reserves.
However, ‘hot money’ does not always stay in one place. The world has witnessed $600 billion worth of hot money leaving emerging 15 emerging markets in the last three years.
Therefore, keeping watch over the movement of hot money is necessary, even though Vietnam is not the center of the world’s financial markets.
