Vietnam’s Bent Bad Bank Truths
Vietnamese shares remained flat on the MSCI frontier index after the bank bad asset management company VAMC was finally launched with $25 million to offer liquidity but not new capital to the system over a 5-year gradual rehabilitation period. The uninspiring scheme coincided with programmed 1 percent currency devaluation against the dollar, which may keep core inflation in double-digits as the central bank also continues to lower the benchmark rate. Q2 GDP growth at 8.5 percent brought the annual clip to 5 percent after the previous quarter’s contraction on good construction and services results while agriculture and assembly exports waned. The trade deficit returned through mid-year although aid, FDI and remittances will sustain external payments balance. The sovereign ratings stable outlook is intact after previous downgrades and the premier, an economic modernizer who has fought to keep politburo member confidence, was recently invited to the US for a White House visit as reward for participation in Trans-Pacific free trade negotiations. Other ASEAN countries are included and Japan has entered as an element of Abenomics while China has stayed out although the latest Strategic Dialogue meeting committed to an eventual bilateral investment treaty. Vietnam maintains minority foreign ownership limits in banks and listed companies it has agreed to review in individual cases as domestic bond opening to overseas buyers also rises on the agenda. At the other area extreme in Indonesia where non-residents control one-third of the outstanding amount, the central bank hiked rates 50 basis points in July as a simultaneous global debt issue was placed at a 100 basis point premium over April. A balance of payments gap has developed there as well which may be mitigated by new fuel subsidy rollbacks, but $4 billion fled from the portfolio account around the time of the announcement as China retains quality curbs on coal imports. The President’s infrastructure building ambitions are in abeyance as the succession contest looms with business and military professionals favored in early opinion readings. The Bumi Resources saga in London has been an equity drag, as the Bakrie family after outmaneuvering the Rothschild-led consortium introduces another delisting proposal which would refold it into their private empire pending fraud and disclosure regulatory investigations.
The presidential contest in Mongolia meanwhile saw the incumbent Elbegdorj win handily, but the uncertain natural resources regime and earnings there sparked an S&P outlook cut to negative as Rio Tinto copper exports were again delayed. GDP growth is still above 10 percent, but public debt has almost doubled to 45 percent of output on new borrowing abroad. Double digit inflation and current account deficits which have drained reserves to less than three months imports are lingering concerns and the 2010 fiscal responsibility law has yet to be honored. The Ulan Bator stock exchange has deepened a technical and cross-trading arrangement with the UK despite the otherwise uncharted vast tract.
