Vietnam's stock market falls victim to U.S.-China trade war
Tuesday, July 17,2018AsemconnectVietnam - Vietnam's smoking hot economy and raging stock market have become Asia's earliest casualties in U.S. President Donald Trump's trade war with China, as the export-reliant nation counts both among its top trading partners.
Vietnam's "frontier" stock market, with a capitalisation of around $125 billion, has been a hot favourite of investors because of the government's privatisation plans and market reforms as well as hopes it would soon be classified by index provider MSCI as a mainstream emerging market.
As investors sold shares to hedge against the risk of Chinese export products such as textiles and furniture being dumped in neighbouring markets such as Vietnam, declining share values have led to margin calls in the heavily leveraged and relatively expensive market, spurring further selling.
"Sentiment has been very negative over the past days, with investors worrying most about the possible negative impact of the trade war. They are concerned that foreign investors will withdraw from the Vietnamese market," said a stock broker at Saigon Securities Inc, adding many of his clients had sold shares because of the need to top up their margin lending accounts.
China was Vietnam's largest trading partner last year. The Southeast Asian country relies heavily on China for materials and equipment for its labour-intensive manufacturing. Meanwhile, the United States is its largest export market.
Vietnam runs a huge trade deficit with China and enjoys a trade surplus with the United States, which Trump has been unhappy about, and that has raised fears the United States may also slap tariffs on the small country.
DONG SLIDES TOO
The dong's decline fuelled speculation the central bank could devalue it to keep it fairly valued as emerging market currencies also succumbed to trade war concerns as well as capital outflows from higher U.S. interest rates.
"Investors seem focused on potential dong devaluation due to pressures created by the yuan devaluation, flowing from the U.S.-China trade war," said Barry Weisblatt, head of research at Viet Capital Securities.
Nguyen The Minh, the head of research at Yuanta Securities Vietnam, expects the stock index now trading around 905 points, could fall as far as 830 in the worst case scenario as the trade war escalates.
The top 20 blue-chip companies, which account for more than two-thirds of stock market capitalisation, are the favourites of foreign fund managers, rendering the market vulnerable to any selling by such overseas investors, Minh said.
He estimates that as of early July margin lending had already declined by as much as 45 percent since April, when the stock market peaked at a record high of 1,211.34 points.
Kevin Snowball, chief executive officer of PXP Vietnam Asset Management, said investor capitulation in Vietnam's markets was a case of their throwing the baby out with the bathwater, since the country was fundamentally very strong, with first-half growth at its fastest pace in eight years and export growth in double digits.
He sees the recent sell-off as a buying opportunity, noting that although it was technically a frontier market in terms of its stage of economic development, it was "being lumped in with the (emerging market) asset class as investors run for the hills."
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