Dong devaluation: a mixed bag
by Thien Ly
On February 11, the State Bank of Viet Nam adjusted the dong's inter-bank exchange rate 3.3 per cent down, from VND17,941 to VND18,544 per US dollar.
The move has been hailed by foreign and domestic investors who believe the devaluation will be good for the financial system, especially the monetary system. When the exchange rates on the official and free markets draw closer, supply of the greenback in the banking system will increase, easing the current shortage.
The new policy has also cheered Vietnamese exporters since their goods and services will now be cheaper for foreign buyers.
The Sai Gon Garment Corporation, for instance, expects to add VND10 billion (over US$540,000) to its turnover which is now estimated at $20 million for this year.
But the flip side of the devaluation is that the cost of imports would be up sharply.
Computer and parts traders in Ho Chi Minh City said their businesses would be affected. The prices of not only electrical and electronic goods but also building materials, vehicles and paper will also go up.
The Viet Nam Steel Corporation has already raised the price of a tonne of rolled steel by VND250,000 and steel bar by VND150,000.
Its general director, Do Duy Thai, said the prices had been hiked because the price of imported raw material for manufacturing rolled steel had gone up from $320 to $353 a tonne following the devaluation.
Cao Tien Vi, general director of Sai Gon Paper Joint Stock Company, said his company would hike prices in March.
Honda Corporation raised prices by 3 per cent on average immediately after the central bank's move.
Increasing import prices will add to the costs of many products since many Vietnamese use imported feedstock or components.
Usual suspects
During the lead-up to Tet last month, both the global and Vietnamese gold markets were extremely volatile. The price yo-yoed between $1,100 and $1,117 per ounce. In Viet Nam it fluctuated between VND24.9 million and VND26.8 million per tael ( each tael is equal to 1.2 troy ounces).
Despite this, many investors, both amateur and professional, remained interested in the gold market, considering it a stable investment channel.
Tran Kim Nga, a resident of HCM City's District 3, has decided to continue investing in gold this year, saying it remains less risky than other asset classes for Vietnamese.
She has been a gold investor for several years and says that gold has appreciated by 20 to 30 per cent annually in recent years.
But analysts warn investors that there is much more volatility around the corner and people putting in money, especially for the short term, should keep a close eye on prices and be prepared to move fast.
Investors expect the real estate market to be in better shape this year compared to last, especially the medium- and low-income housing segments.
Tran Quoc Viet, a property investor living in District 7, said demand for medium- and low-cost housing remained huge. With the city building bridges and roads in many areas where such housing projects were planned to be developed, these segments were likely to see a boom this year and investors could cash in, he said.
The securities markets is also a favourite with many investors who believe conditions are ripe for it to flourish.
Last year, many companies reported huge profits and expected this trend to continue this year. Many others are likely to begin reaping the rewards of projects executed last year.
Aviation market
Viet Nam's aviation market posted an encouraging increase of 8.4 per cent in the number of passengers in 2009, a tough year for the industry worldwide.
According to a report by the Civil Aviation Administration of Viet Nam (CAAV), the number of passengers passing through the country's airports reached 17.5 million last year, up 8.4 per cent over 2008 and 4 percent points higher than previous estimates.
More than 11.6 million passengers flew with local airline companies comprising national flag carrier Vietnam Airlines and its subsidiary, the Viet Nam Air Services Company (VASCO), Jestar Pacific and Indochina Airlines. The figure represented an annual growth of 12 per cent for the domestic segment.
Cargo transportation by air showed a slight increase of 2 per cent over 2008 to 346,000 tonnes. Domestic carriers transported 141,000 tonnes of cargo, up 4.2 per cent year-on-year while foreign airlines made up for the remainder.
Despite the single-digit growth in passenger numbers and cargo volumes, the performance of Viet Nam's aviation market remained encouraging in a global context.
Last year, airline companies the world over had to cope with weak air travel demand and other challenges as a result of the global economic turndown and fears of the influenza A/H1N1 virus. — VNS