The State Bank of Vietnam (SBV) started to apply daily reference exchange rates from the beginning of 2016. According to many experts, this new exchange rate mechanism will significantly influence the securities investment funds and enterprises. Andy Ho, Managing director and Chief Investment Executive of VinaCapital had a talk with TTVN regarding the impact of this new exchange rate policy.
Andy believed that the investment of VinaCapital will not be much affected as the firm has experience in handling exchange rate fluctuations over the years. According to Andy, with the current managed float regime, investors will have more information on the operating direction of SBV through the small daily exchange rate fluctuation and they thus have more time to proactively adapt. For VinaCapital and investors, this is a positive and laudable step in managing monetary policy.
Regarding the trend of foreign capital flows in relation with the application of the new exchange rate mechanism, Andy said that the daily changes of the exchange rate will make investors more confident than the sudden currency devaluations in the past, and investors can actively adjust their investment strategies. VinaCapital believed that the foreign investment flows will not be negatively affected from the new exchange rate policy.
According to Andy, Vietnam has an attractive investment environment, seen through the 6.1 percent growth of the stock market in 2015, much more positive than other regional markets such as Indonesia (-12.1 percent), Malaysia (-3.9 percent), Singapore (-14.3 percent), and Thailand (-14 percent). In addition, the macroeconomic situation of Vietnam remains favourable with GDP growth of 6.7 percent in 2015, the highest level in the last five years; very low inflation of under one percent; fairly stable exchange rate as the dong devaluation rate was only five percent while other currencies of the Southeast Asian countries recorded eight to 12 percent devaluation. Overall, the macroeconomic statistics show that the economic conditions of Vietnam have been much improved and will probably be more positive in 2016, creating favourable foundation for the market development in the future.
Concerning the strategy to cope with the inevitable trend of dong devaluation, Andy said that VinaCapital always considers carefully the exchange rate factor when drawing up investment strategy. With the new exchange rate policy, Andy thought that SBV has given clearer indication of the fluctuation of dong as well as the roadmap to step by step accomplish this. The transparency of the new exchange rate regime will help stabilise the market as it relieves the instable psychology due to sudden changes of exchange rate in the future. Moreover, the firm has been using forward exchange rate trading and some other measures to minimise risk and protect capital flows.
SBV is encouraging enterprises and investors to exploit the future contracts in order to meet the foreign currency needs, with the aim of converting the borrowing-lending relations to buying-selling relations. Andy considered this as a constructive step and this type of transaction should be promoted to a comprehensive mechanism to help reduce risks for enterprises, investors and individuals. Furthermore, when the trading volume increases, the concern of enterprises on the high costs will gradually be lowered accordingly and the units involved in the transaction will all be benefited.