Two scenarios for inflation

Alain Cany, Chairman of Eurocham, predicted that the global financial crisis would have severe impacts on Vietnam’s economy in the time to come. However, the possible 6% of GDP growth rate in 2009 proves to be not a low level.

Mr. Cany gave two scenarios for Vietnam’s inflation in 2009. In the first scenario, the dollar appreciates, which would lead to the high inflation as the devaluating VND would lead to a higher trade deficit.

In order to support the credit market, the State Bank of Vietnam may slash basic interest rates, which would lead to the loosening of loaning conditions, and to the inflation increase.

In the second scenario, Mr. Cany said if the GDP growth rates of China, the US and Europe are low, this would lead to falls in the consumption demand of key products, thus reducing the prices of many commodity items. If so, the prices of key commodity items like food, cement and steel would be at lower levels. In such conditions, Vietnam’s inflation rate may go down to one digit by the end of 2009 instead of 12-14% as previously forecast.

Securities remain attractive

Statistics showed that in the first nine months of 2008, the net profit growth rate of Vietnam’s financial sector was -33.1%, while the earnings per share growth rate were -67%. The P/E (price/earning ratio) in the last 12 months was 9.7, while the P/B (price to book ratio) was 1.6. The VN Index dropped from 910 points at the end of 2007 to 314 points in mid-October 2008.

The decreases themselves are believed to create the driving force for the recovery of the market in the time to come. A panel speaker quoted Bloomberg as saying that foreign investors are still interested in Vietnam’s stock market.

Currently, Vietnam’s stock market is making transactions with the P/E index at 10.5, P/B 1.8, which prove to be very near to other markets in South East Asia.

Investment opportunities available

Nguyen Chi Dung, Deputy Minister of Planning and Investment, affirmed that in 2009, though Vietnam may have to face a lot of difficulties due to the world’s economic recession and the fluctuating oil prices, there still more opportunities than challenges in the country.

The investment capital flow may decrease and the foreign direct investment (FDI) disbursement may slow down due to the narrower scale of foreign investment funds.

The global expenses cuts will affect Vietnam’s exports. However, the effects would not be serious, as Vietnam has many cheap export items which can replace expensive products in South East Asia. The demand for oil, farm produce, apparel, footwear and wooden furniture has been stable.

However, the export forecasts still need to be adjusted in accordance with the forecast GDP growth rate decrease in the world. Analysts all believe that Vietnam has been well prepared to overcome the challenging period.

Source: NLD