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The exchange rate is stable thanks to the trade war's impact

Friday 04, 10 2019
The global exports are not growing as well as in previous years. We realize that export growth has slowed down somewhat
The exchange rate is stable thanks to the trade war's impact

The dollar exchange rate is quite stable thanks to both the positive and negative effects of the US-China trade war. The VND is forecast to rise slightly against the USD between now and the end of the year and in the first half of 2020.

The current stability

During a press conference in Hanoi last week, Mr. Divya Devesh, Head of the ASEAN and South Asia forex research group at the Standard Chartered Bank, commented on the multidimensional impacts of trade war between the US and China raising the USD / VND exchange rate, including the global growth slowing down, leading to a reduction in export demand in many countries.

“The global exports are not growing as well as in previous years. We realize that export growth has slowed down somewhat, though it still increased but not as fast as before. And the trade surplus is also shrinking, thereby having an adverse impact on the VND, ”Mr. Devesh shared.

In addition, the main motivation for supporting the VND (VND) is the foreign direct investment (FDI) inflow currently estimated by the bank's research group to reach about $ 15 billion in 2019, thanks to the positive impacts of the trade war in the stimulation of the FDI inflows into Vietnam.

"Because of the trade war, Vietnam has become a destination to attract FDI flows and this partly helps support the VND," Mr. Devesh emphasized.

“We expect the dong to remain stable for the next 3 to 6 months. Regarding the forecast for the end of 2019, the exchange rate will be stable at 23,100 VND per dollar and as of June 2020, it will be 23,000 VND per dollar. The VND will, therefore, rise slightly against the dollar thanks to the support of the balance of payments, the account surplus will be of approximately 3% of GDP, and the FDI inflows will reach $ 15 billion per year. ”

According to the forecasts made by Mr. Joseph Incalcaterra, senior ASEAN economist of HSBC, the USD / VND exchange rate is forecast to be 23,550 VND in 2019 and maintain at this level in the next year.

Commenting on the exchange rate which is "a bit high" compared to the market's situation made by an independent research department, Mr. Pham Hong Hai, Member of the Board of Members of HSBC Vietnam, said that it is likely that the market's adjustment will be lower than this independent forecast because Vietnam will not want to be regarded as using exchange rate policy or monetary intervention to support exports, especially in the context of Vietnam's rapid exports to the US during this period.

“The SBV has no need to push the exchange rate up quickly. In general, I forecast that every year, the rate increase of 2% is an acceptable threshold ”, Mr. Hai shared on the sidelines of the macroeconomic prospect "Strive in the challenge" workshop held in Hanoi last week.

At the meeting on the information of the banking performance in the third quarter of 2019 held at the State Bank on October 1, Deputy Governor Dao Minh Tu emphasized that the exchange rate in the foreign exchange market is currently relatively stable and is developing flexibly to accommodate the changes in the market conditions. In which, the market liquidity is guaranteed, the foreign currency transactions take place smoothly, and the legitimate foreign currency demands are met fully and promptly. SBV net bought foreign currencies, added to the state foreign exchange reserves.

The slow impact of the trade war

FDI inflows are forecast to continue to increase strongly in the coming time as the trade war will continue. With a stable flow of foreign direct investment, the VND will maintain its position in the medium and long term.

According to Mr. Edward Lee, Head of the ASEAN and South Asia Economic Research Group at the Standard Chartered Bank, Vietnam has attracted more direct investment at the present time than the average of the whole country in the last 5 years.

However, the current FDI inflow is the result of attracting this capital inflow through Vietnam's cheap labor advantage promoted in the past. The impact of the trade war between Washington and Beijing at this time has not really affected the flow of FDI into Vietnam.

According to a survey by the Standard Chartered Bank, if many manufacturers based in China previously answered "no" to the question if they intended to leave the production facility out of the country because of the trade war. Now, when they were asked again, they answered yes.

“The trade war is increasing the trend that FDI companies are thinking of having to emigrate from China,” Lee said. “This reflects that these companies have a common sense that the trade war will be long-term.”

The capital flows into Vietnam in the near future, therefore, will be a mixed result of cheap labor attraction and the consequence of the trade war leading to the relocation of production facilities from China.

According to an economic report by Chief Economist Michael Kokalari of VinaCapital, the annual inflows of FDI into Vietnam are forecast to increase from $ 20 billion in 2020 to $ 50 billion in the next 5 years. The annual FDI growth will double from 10% to 20%, which will likely be from the capital flows from companies relocating from China to Vietnam triggered by the trade war instead of from half of the FDI inflows into Vietnam as before.

In the meantime, the supply of foreign currency will continue to be supported through foreign exchange reserves which is approaching the figure of 70 billion dollars, along with a large amount of foreign currency inflow through recent M&A transactions such as the GIC Fund deal of Singapore pouring 500 million USD into the Vinmart supermarket chain or BIDV to issue separate shares worth nearly 900 million dollars to KEB Hana Bank.

In addition, the indirect capital flows from many venture capital funds have pledged to invest a total of $ 425 million in Vietnamese startups over the next three years. Several funds have poured capital into Vietnam, such as the Korea's DT & Investment (DT&I) investment fund, which announced a $ 1.4 million investment in Propzy, an O2O real estate platform (online to offline), which committed in June to set up a fund dedicated to the Vietnamese market with a total value of 40 million USD in 2020.

>>> 
Unexpected Exchange Rates At The End Of 2019

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