US-China trade war de-escalation improves Vietnam’s financial market
The exchange rate (FX) rate and short-term rates stop to go up while net buying foreign investment flow was reported in the last two months.
Softer talks between the US and China are making significant contribution to the improvement of Vietnam’s financial market, according to Viet Dragon Securities (VDSC). The exchange rate (FX) rate and short-term rates stop to go up while net buying foreign investment flow was reported in the last two months.
With regard to the FX rate, both rates, in the free market and the banking system, have gradually decreased since November. In 2018, the USD/VND exchange rate rose by around 2%. Notably, the State Bank of Vietnam (SBV) is actively setting a higher central FX rate during the silent period. VDSC expected the rate will increase until the end of the first quarter and reach the mark of 23,000.
In addition, the SBV is confident of shooting its buying FX rate up in order to strengthen the FX reserves as the current account and financial account were healthy in 2018. The rate rose to VND 23,200 from VND22,700, not seen since the large swings at the end of 2016.
It was widely reported that the SBV has bought over US$1.3 billion at the beginning of 2019. That implies a massive amount of domestic currency supplying to the market. As a result, the overnight interest rate saw a drop in few weeks ago.
However, it is necessary to follow the movement of the 3-month interest rate in the interbank market. The interest rate is in close relations with the borrowing and lending rates. That continuously steps up and stands at around 5.2% per year, the highest level in recent years.
Bond yields are divergent between the primary and secondary bond markets. The trading bond yields, especially 5-year bond yield, plunged in few weeks ago due to the drop of overnight interest rate. Nevertheless, the bond yields keep rising in the primary market.
Notably, investors prefer 10-year and 15-year bonds than others due to their relatively attractive yields. In January, the issued amount is estimated at around VND40 trillion (US$1.72 billion), likely the highest performance in the last twelve months. The return of foreign investment flows and the SBV’s USD buying are likely the major reasons. Besides, foreign investors also net bought in the stock market. The VN-Index rose by 1.2% year-to-date.
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