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Vietnam
A number of negative stories about the Vietnamese economy appeared in the international media near the end of the month after Morgan Stanley issued a report comparing Vietnam’s situation to the 1997 Asian financial crisis. This had a major impact on the perceptions of investors as all Vietnam-related equities fell sharply in the final days of the month.
There has indeed been strong demand for US dollars and a weakening of the VND, which rose to above VND17,500 per USD on the open market during the month. However, Vietnam has now confirmed its foreign reserves at USD22 billion and can tap USD credit lines from ASEAN under the recent currency swap agreement between central banks. The VND has begun to stabilize after the official VND/USD rate was decreased by 2% and the state started to take legal action against those trading the VND outside the authorized band.
After a small decline in April, inflation shot up to 3.9 percent, the highest month-on-month rate since September 2007. The CPI has increased 15.9 percent YTD, a 15-year high. Food prices saw the biggest rise, at 52.9 percent. Rice hording and speculation has been pinpointed as one of the major culprits as the price doubled in the last week of April. However the price began to come down in May and thus June inflation may be lower.
New FDI commitments registered almost USD7.5 billion in May and brought the YTD total to USD15.3 billion, close to the annual target of USD20 billion. The hotel and service sectors account for 83 percent of new FDI projects, while the industrial sector share was only 16.2 percent.
The trade deficit for the year widened to USD14.4 billion in May, greater than the whole of 2007. Imports for the first five months reached USD37.8 billion. Compared to the same period last year imports have outgrown exports by 2.5 times. Some notable imported goods are automobiles, steel billet and fertilizer.
The VN Index closed May at 414, down 20.7 percent from April’s close of 522. Trailing P/E at the end of May reached 11.5x, still above the absolute floor Asian markets have seen during crisis times of trailing P/Es of 8x. This implies a further potential downside of the VN Index to roughly 325-350.
Source: VinaCapital
United States
The economy continues to wobble; not quite spiraling downward, but not buoyant, either. Numerous sectors are off from their peaks. Importantly, consumer troubles continue to brew.
Retail sales improved in May, helped by warmer weather and tax rebates. However, the trend in sales is downward. Over the past year, fluctuating gas prices and motor vehicle demand have added to the erratic pattern in sales. The sector most hurt by rising gas prices has been motor vehicles. Light truck sales remain dismal, as consumers steer away from less fuel-efficient vehicles. Unit sales are down by nearly a third from two years ago.
Due to weakening sales, retail vacancies are rising. Real estate research firm Reis reported that vacancies at neighborhood and community centers rose to 7.7% in the first quarter. This was the highest level in more than a decade. Regional mall vacancies advanced to 5.9%. The Conference Board’s June Index of Consumer Confidence plummeted to 50.4, the lowest reading since 1992.
Employment remains worrisome. In May, employment fell by 49,000 workers, the fifth consecutive decrease. And the unemployment rate rose to 5.5 percent.
Personal bankruptcies are up 21 percent from a year ago. The current mortgage delinquency rate, 6.35 percent, is the highest in the history of the series. And delinquencies on commercial bank loans are the highest since 1993.
In manufacturing, industrial production edged up slightly in May, but the index remains below its January peak. Factory utilization continues to weaken.
Source: Deloitte USA
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