Macro Report

SSI recently hosted a webinar titled “Gateway to Vietnam: Post US Election – Impact on Vietnam”, emphasizing on how the new US administration’s future policies could impact the Vietnamese economy, and whether Vietnam could be a beneficiary.

The panel hosted by Thomas Nguyen (Chief Global Markets Officer, SSI) with panelists as Hung Pham (Chief Economist, SSI), Frank Kelly (Managing Partner, Fulcrum Macro), Ryan Caldwell (Chief Investment Officer, FS Chiron Funds) and Tanwa Chinnapha (Head of Direct Investment, Kiatnakin Phatra Financial Group).

Following Mr. Donald Trump’s declaration of victory in the U.S. election last night, initial market reactions have been relatively positive. However, concerns are growing about the future for highly trade-dependent countries like Vietnam. While the market is waiting for more concrete developments from the new U.S. administration, in order to alleviate the potential negative impact on economy in the longer term, Vietnam must not only enhance its openness to foreign investment (not just direct investment, but also portfolio investment by emerging market upgrade) but also focus on domestic growth drivers such as consumption and public investment to maintain its trajectory of fast and sustainable growth. In the short term, currency risks persist and should be addressed not only through the accumulation of foreign exchange reserves but also by allowing greater flexibility to foster a deeper forex market.

While the impact of the U.S. election on Vietnam is significant, the role of Vietnam’s new leadership is crucial in navigating these uncertain times. We reaffirm our belief that Vietnam’s non-alignment policy could bolster its position as a pivotal connector in the fragmented global economy.

The General Statistics of Vietnam released the first reading of macro data in Q3 2024 over the weekend, and the data shows Vietnam continued to have a decent recovery on the back of last year’s slowdown. Q3 real GDP growth printed at 7.4% YoY, far exceeding market expectations. While the impact from Typhoon Yagi is large in terms of damage to infrastructure and livelihoods, particularly affecting the tourism sector in some Northern provinces, but the temporary impact might be mitigated by disaster recovery efforts. Moreover, and quite possibly likely due to the timing of the typhoon, September manufacturing PMI looked overly pessimistic, so we expect to see a bounce in this metric as well soon.

1Q24 revision: On that note, 2Q24 GDP growth was revised up to 7.09% (from 6.93% prelim) on the back of better manufacturing (+10.39% from 10.06%) and agriculture (3.41% from 2.91%), but there was a little change to consumption data.

SBV granted a higher credit growth limit for commercial banks. Last week, open market operations were relatively calm, with a net add overall (VND 19.7 tn) regardless of liquidity rebalancing seen at the end of the month liquidity. In detail, the SBV issued VND 33.3 tn worth of 7-day reverse repos to pair with VND 38.4 tn having expired. At the same time, SBV paused issuing SBV-bills in response to lower exchange rate pressure, and there was VND 24.8 tn expired.

SBV granted a higher credit growth limit for commercial banks. Last week, open market operations were relatively calm, with a net add overall (VND 19.7 tn) regardless of liquidity rebalancing seen at the end of the month liquidity. In detail, the SBV issued VND 33.3 tn worth of 7-day reverse repos to pair with VND 38.4 tn having expired. At the same time, SBV paused issuing SBV-bills in response to lower exchange rate pressure, and there was VND 24.8 tn expired.

Lower SBV-bill rate. Last week, activities in the open market operations were balanced, with a slight net addition (VND 1.3 tn). In detail, the SBV issued VND 38.4 tn worth of 7-day reverse repos to pair with VND 50.9 tn having expired. At the same time, there were only VND 22 tn of 14-day SBV-bills issued, out of VND 35.75 tn expired. Interestingly, the SBV-bill rate was lowered twice, to 4.15% from 4.25% previously, reflecting lower exchange rate pressure vis a vis the USD.

The SBV injected liquidity in open market operations. The SBV net injected liquidity via open market operations last week (+VND 28.3 tn), mostly due to the huge amount of SBV-bill expiration. In detail, the SBV issued VND 50.9 tn worth of 7-day reverse repos to pair with VND 56.6 tn having expired. At the same time, commercial banks have shown more interest in SBV-bills. In total, VND 24.8 tn worth of SBV-bills were issued, out of VND 58.75 tn expired.

Both reverse repos and SBV-bills were actively utilized to manage short-term systemic liquidity

The SBV slashed both reverse repo and SBV-bill rates in early August in response to currently lower exchange rate pressure

The interbank interest rate hovered around the 4.5% - 5.0% range, while the deposit rate hike trend had seemingly paused

Credit growth slid in July after accelerating in June, while deposit growth was slow

The interbank, the VCB-quoted, and parallel exchange rate moved away from historical highs, thanks to softened USD strength

We forecast the USD/VND might hover around this range to year-end as the SBV might re-accumulate FX reserves

The STV announced a more ambitious issuance plan in Q3/2024 and as a result there were more bonds on offer in July

Government bond yields were flat for both primary and secondary market, w/ demand concentrated in the 10Y tenure

SBV cut reverse repos and SBV bill rates. The SBV flipped to inject liquidity via open market operations last week (+VND 13.1 tn), mostly in the first 3 days of the week. In detail, the SBV accelerated to issue 7-day reverse repos to provide liquidity, with VND 56.6 tn having expired. At the same time, commercial banks have been interested in SBV-bills, and in total VND 35.75 tn was issued, out of VND 16.2 tn expired.

Banks actively utilized the interbank channel at the end of the month. The SBV flipped positioning and withdrew liquidity via open market operations last week, mostly due to a huge volume of reverse repos expired. In detail, only VND 24 tn worth of 7-day reverse repos was issued at 4.5% p.a. (unch.) out of VND 59 tn expired, while there was about VND 58.75 tn of 14-day bills being utilized at 4.5% (unch.) out of VND 48.1 tn expired. As of Friday, the SBV withdrew VND 45.7 tn of liquidity out of circulation.

The SBV opened the liquidity valve yet again via open market operations. The SBV continued to actively provide liquidity via open market operations, with a net pump of VND 13.1 tn in total. In detail, VND 34.3 tn worth of 7-day reverse repos was issued at 4.5% p.a (unch) out of VND 50.5 tn expired, while there was VND 48.1 tn of 14-day bills being utilized at 4.5% (unch) out of VND 77.4 tn expired. The overnight rate remained flat at 4.5% for most of the week, and average daily trading turnover rose to VND 313 tn, from VND 305 tn in the week before.

The SBV returned to pump liquidity via open market operations. The SBV returned to provide liquidity to the money market last week via open market operations, with a net pump of VND 54.8 tn in total. In details, VND 50.5 tn worth of 7-day reverse repos was issued at 4.5% p.a (unch) out of VND 24.8 tn expired, while there was VND 33.6 tn of 14-day bills being utilized at 4.5% (unch) out of VND 62.4 tn expired. The overnight rate remained elevated for most of the week at 4.8%, but cooled down a bit on Friday, to 4.5% (-30 bps WoW).

The SBV accelerated bill issuance to counter exchange rate pressure

Liquidity was well provided, and was only impacted by the quarter-end factor at the last trading week of June,

The interbank interest rate hovered around the 4.0% - 5.0% range, while the deposit rate hike trend is slower

The unofficial parallel USD/VND rate climbed to historical highs, and SBV must utilize aggressively FX sales to counter

Government bond yields were flat for both primary and secondary market, w/ demand concentrated in the 10Y tenure