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Tag: Finance

  • Malaysia’s November export growth expected to slow to 3%

    Malaysia’s November export growth expected to slow to 3%

    RAM Ratings expects Malaysia’s export growth to decelerate to 3% in November 2018, as front-loading activities that had temporarily propped up exports by 17.7% in October subside. The rush to front-load orders in October was driven by greater concerns over the planned increase in US tariffs – from 10% to 25% – on US$200 billion (RM827 billion) of Chinese imports, the ratings agency said in a note today.

    RAM is of the view that the export stimuli will remain limited over the next few months – a scenario further supported by a contraction in China’s manufacturing export orders in the last several months.

    In line with the weaker external demand, RAM expects that import growth would ease to 1.8% in November.

    Overall, the trade surplus is projected to come in at RM11.1 billion in November.

    To date, Malaysia has yet to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that came into force on Dec 30 with seven members.

    That said, RAM’s head of research Kristina Fong opined that Malaysia’s absence is unlikely to have significant implications for its trade performance in the near term, given that it already has free trade agreements (FTA) with five of the seven signatories.

    “The two remaining countries, Canada and Mexico, constitute a small share of overall exports at just 0.4% and 1%, respectively, thus limiting potential adverse trade diversion away from Malaysia,” she explained.

    Furthermore, she said this trade diversion risk is also mitigated by the fact that the tariff reductions on major goods imported from Malaysia that also overlap with key imports from other CPTPP members, is mostly less than one percentage point.

    While the direct impact of Malaysia’s absence from the deal could be muted in the short run, RAM said it could potentially cause the country to lose out over the long term as regional members in the multilateral FTA could be favoured as foreign direct investment destinations.

    “Standardised rules of origin and lower regulatory barriers brought about by the CPTPP could entice firms to more readily build up supply chains between member countries. This dynamic could in turn foster the development of new industries and global value chains and build new capacities within this alliance,” it added.

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  • Retailers to lose US$130 billion from card-not-present fraud: Juniper

    Retailers to lose US$130 billion from card-not-present fraud: Juniper

    Increasingly complex card-not-present fraud will cost retailers US$130 billion globally in digital sales over the next five years. A Juniper Research study predicts that retailers’ slow pace in keeping up with new fraud prevention requirements will allow cybercriminal practices to become more widespread as more and more consumers shop online. It observes that established point-of-sale vendors will need to move towards mobile POS technology in order to expand their reach into fresh markets and reduce their exposure to card-not-present fraud.

    “A layered fraud detection and prevention (FDP) solution naturally helps directly preventing fraud, but it also offers major gains in terms of recovering potentially lost revenue through false positives,” said the report’s author Steffen Sorrell. “This is something about which retailers remain undereducated, and has allowed fraudsters to capitalise on relatively low FDP spend”.

    An implication of the Juniper research is that a low understanding of FDP investment return is causing the low uptake of the technology. the report anticipates digital payment players will be spending $9.6 billion annually on FDP solutions by 2023.

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  • China Slowdown, Trade Disputes Weigh on Asia Factory Activity

    China Slowdown, Trade Disputes Weigh on Asia Factory Activity

    Factory activity weakened across Asia in December as the Sino-US trade war and a slowdown in Chinese demand hit production in most economies, strengthening the case for a pause in interest rate hikes in the region in 2019. A series of purchasing managers’ indexes (PMI) for December released on Wednesday mostly showed declines or slowdowns in manufacturing factory activity across the region. In China, the Caixin/Markit PMI slipped into contraction territory for the first time in 19 months, broadly tracking an official survey released on Monday.

    China’s weakness spilled over to other Asian economies, with Malaysia’s manufacturing activity shrinking to its weakest pace of expansion since it launched the survey in 2012 and Taiwan contracting to its lowest since September 2015.

    Meanwhile, official economic data out of Singapore showed its gross domestic product grew more slowly than forecast in the fourth quarter as the city-state’s manufacturing sector contracted on a quarterly basis.

    In other regions, the eurozone was expected to post steady manufacturing activity growth, while US activity was seen a tad slower, but firmly in expansion territory, in a sign that so far China has suffered more bruises from its trade frictions than the United States.

    With growth slowing and inflation below or barely within the target in most countries, Asian central banks are unlikely to continue their tightening cycle this year, barring any shocks in currency markets.

    “We are really seeing a global slowdown into this year, and in Asia, particularly export-oriented countries are hurting,” said Irene Cheung, Asia strategist at ANZ.

    “Our expectation for central banks is that most of them won’t change policy in 2019 and these numbers coming out on the weak side won’t change that outlook.”

    The world’s two largest economies agreed at the start of December to a 90-day truce following tit-for-tat tariffs that have disrupted the flow of hundreds of billions of dollars of goods between the two countries.

    The two sides have pledged to hold frequent talks in the next two months, but uncertainty over whether they can bridge massive differences over commercial practices and intellectual property rights remains very high, despite US President Donald Trump noting “big progress” in a tweet.

    Tariffs are not the only drag on China’s economy. Beijing’s sustained drive to reduce debt risks in the economy has cooled the property market and curbed credit flows to the private sector. Meanwhile, the government’s intensified crackdown on pollution has dented industrial activity.

    In a key annual conference last month, China’s top leaders said they will boost support for the economy in 2019 by cutting taxes and keeping liquidity ample while promising to continue negotiations with Washington.

    “The People’s Bank of China may have to ease further to offset the impact of tariffs,” said Robert Michele, chief investment officer and head of fixed income, J.P. Morgan Asset Management.

    China’s economic growth slowed to 6.5 percent in the third quarter of last year, the weakest since the global financial crisis. As reported, government advisers had recommended a growth target of 6.0-6.5 percent for this year at the annual meeting, though the final figure won’t be made public until the annual parliament meeting in early March.

    Oil Drive

    A sharp drop in the crude price at the end of last year has helped sentiment in Asia’s oil-importing economies, where trade deficits are a key vulnerability.

    Indonesia’s PMI index, although still weak historically, rose to 51.2 from November’s 50.4, a four-month high. India’s declined to 53.2 from 54.0 but capped the strongest quarter for the country’s manufacturing sector since late 2012. Philippines PMI was also 53.2.

    But Malaysia, which relies heavily on oil revenues, saw its weakest reading ever at 46.8.

    Taiwan and South Korea, which are heavily focused on tech production, also saw their activity shrink. The US-China trade war affects chip orders and coincides with a slowdown in demand for smartphones globally.

    The contraction in South Korean manufacturing activity continued last month albeit at a slower pace, its PMI showed, with new export orders declining for a fifth consecutive month. Taiwan’s PMI, meanwhile, fell to its lowest since September 2015. Japan publishes PMIs on Jan. 4.

    Vietnam’s PMI fell to 53.8 from November’s 56.5, but the index’s 2018 average was the highest since the survey’s debut in 2011.

    The Southeast Asian economy is widely seen as benefiting from the US-China trade war as companies look to establish operations in the country to avoid the tariff crossfire.

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  • Indonesia Posts Narrowest Budget Deficit in 6 Years in 2018: Finance Minister

    Indonesia Posts Narrowest Budget Deficit in 6 Years in 2018: Finance Minister

    Indonesia posted the smallest fiscal deficit in six years in 2018 and less than initially projected, despite turbulence in its financial markets due to capital outflows, Finance Minister Sri Mulyani Indrawati said in a Facebook post. The estimated budget deficit last year was equal to 1.72 percent of gross domestic product, narrower than both the government’s original plan of 2.19 percent and the latest estimate of 1.83 percent, Sri Mulyani said in a message posted late on New Year’s Eve.

    As a percentage of GDP, that was the smallest since 2012, the former World Bank managing director said.

    The 2018 budget also has a Rp 4.1 trillion ($283 million) surplus in its primary balance, or budget balance before interest payments, which Indrawati said was the first surplus since 2011.

    “We have done our duty to manage government finances well. The year 2018 was not an easy year with fluctuations in the global economy, commodity prices, capital flows and exchange rate,” she said, while also noting higher interest rates at home and globally.

    The rupiah plunged to its weakest in 20 years in 2018 due to capital outflows linked to worries about its twin deficits, US interest rate increases and concerns about the fallout for Asia from the US-China trade war.

    However, inflows towards the end of the year bounced it back and the currency closed the year 6 percent weaker compared with end-2017.

    Sri Mulyani said 2018 income from taxes and other revenue sources grew “high and healthy.” She previously said higher oil prices and a weaker rupiah had resulted in higher government revenues.

    The minister is expected to hold a news conference on budget realization on Wednesday.

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  • Indonesia December Inflation Cools, Stays Within Bank Indonesia Target

    Indonesia December Inflation Cools, Stays Within Bank Indonesia Target

    Indonesia’s December annual inflation rate eased, but the pace was quicker than expected, data from the Central Statistics Agency, or BPS, showed on Wednesday. The annual inflation rate in December was 3.13 percent, the agency said, lower than November’s 3.23 percent, but quicker than the median forecast of 2.98 percent. The December rate was well within Bank Indonesia’s target range of 2.5 percent to 4.5 percent for 2018.

    On a monthly basis, the consumer price index rose 0.62 percent due to rising food prices and transportation fares.

    The annual core inflation rate, which excludes government-controlled and volatile prices, was 3.07 percent, matching the poll’s prediction and representing a slight acceleration from November’s 3.03 percent.

    The central bank raised interest rates six times last year to defend the rupiah, which hit its lowest in 20 years in October. However, the currency pared some losses closer to the end of the year due to capital inflows

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  • Indonesian Stock Exchange ends 2018 in the red

    Indonesian Stock Exchange ends 2018 in the red

    Indonesia’s benchmark stock index declined 2.54 percent overall in 2018 amid a rough year for equities globally. Foreign investors sold a net Rp 50.75 trillion ($3.52 billion) in Indonesian stocks for the whole of 2018, compared with Rp 39.6 trillion in 2017. The market capitalization of Indonesia’s stock market meanwhile stood at Rp 7,023 trillion, compared with Rp 7,052 trillion a year earlier.

    The last trading day of 2018 on Friday last week saw the Jakarta Composite Index (JCI) closing 0.06 percent higher at 6,194.5.

    Inarno Djajadi, the new chief of the Indonesia Stock Exchange (IDX), said during Friday’s closing ceremony in South Jakarta, attended by President Joko “Jokowi” Widodo, that 57 companies listed their shares in 2018. This is a record high.

    Wimboh Santoso, chairman of the Financial Services Authority (OJK), expressed optimism during the event that the JCI would hit a level of between 6,500 and 7,000 next year.

    “We are still upbeat that the JCI has a chance to gain further. The OJK will provide stimulus to encourage more companies to list by offering various instruments,” he said.

    Wimboh said despite negative sentiment from external factors, such as the ongoing trade war between the United States and China, the business community remains optimistic about the Indonesian economy.

    Not Too Bad?

    President Jokowi also expressed optimism that the JCI may perform better next year. Citing IDX data, he said despite the 2.54 percent decline, the JCI was the second-best performer in Asia after India, which saw its benchmark stock index gain 6.17 percent this year overall.

    Jokowi said 2018 was not an easy year for the country’s economy, which was impacted by both external and internal factors.

    He said Indonesia’s large current-account deficit put pressure on the rupiah, which ultimately also affected the financial performance of listed companies. Meanwhile, normalization of US monetary policy, which caused capital outflows from emerging markets such as Indonesia, the US-China trade war and weak commodity prices also impacted Indonesian companies.

    “All of these have caused volatility in the JCI’s performance and dragged down the performance of listed companies,” he said.

    Jokowi said the government was fully committed to strengthening Indonesia’s stock market, as it should not only serve investors’ interests, but also function as a source of long-term funding for local companies to expand their business and help boost the country’s economy.

    According to Inarno, the number of registered investors on the IDX increased by roughly 222,000 to about 851,000, with 29 percent of them actively trading every day.

    The average daily trade for the whole year stood at Rp 8.5 trillion with an average frequency of 386,968. This is the biggest in Asia.

    Fundraising Down

    Fakhri Hilmi, deputy commissioner for capital market supervision at the OJK, said fundraising by Indonesian companies from capital markets in 2018 is estimated at Rp 163 trillion, which is 35.9 percent lower than last year.This figure includes initial public offerings, rights issuances and bond sales.

    “This year’s isn’t as much as last year; the value of IPOs were smaller,” he said.

    More Stocks Booking Losses

    More stocks booked losses in 2018 compared with last year. Of the 619 companies listed on the local bourse, 252 saw gains in their stock prices, while 327 booked losses. The remainder were stagnant.Of the shares that increased in value, 41 booked gains of more than 100 percent, while four increased by more than 1,000 percent.

    They are Super Energy, a company engaged in oil, gas and mining and petroleum transportation services, which saw its stock price rise by 1,450 percent this year, and financial services provider Pool Advista Finance, which saw its stock price jump 1,529 percent.

    The stock price of Prima Cakrawala Abadi, an exporter of fishing products, jumped 2,006 percent and Transcoal Pacific, a sea transportation and logistics service provider, saw its stock price skyrocket by a massive 3,714 percent.

    However, these are penny stocks. Indonesia’s shallow capital markets allow traders and brokers to trick the price of stocks that have low market values.

    Meanwhile, only 11 companies of Indonesia’s top 45 listed companies by market value, known as LQ45, booked gains in 2018.

  • Vietnamese banks deposit rates rise as usual at year end

    Vietnamese banks deposit rates rise as usual at year end

    Banks usually hike deposit interest rates and even offer promotions at the year end, and this year has been no different. On December 19 Sacombank announced a rise in interest rates on deposits of three months from 5.2-5.3 percent to 5.5 percent, and on deposits of 12 months from 6.9 percent to 7.7 percent. VPBank has increased its rates by 0.1-0.7 percentage points, with deposits of 18 months and more carrying the highest rate of 7.8 percent.

    State-owned banks such as BIDV and Vietinbank have hiked rates by 0.1 to 0.5 percentage points.

    The management of a joint-stock bank headquartered in the south said lending usually rises in the last quarter of the year to meet the rising demand for short-term credit to serve the working capital needs of companies.

    As a result, many banks increase their deposit rates, especially for short terms, it said.

    Besides, experts said lenders are running out of time to use 45 percent of short-term capital for medium- and long-term loans, with the ratio to be reduced to 40 percent on January 1.

    The National Financial Supervisory Commission has recently estimated that credit growth to have slowed significantly to 15 percent this year from 18 percent in 2017.

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  • India eyes $100 billion FDI in next two years

    India eyes $100 billion FDI in next two years

    India will aim to receive $100 billion in foreign direct investments in the next two years and special industrial clusters are being created for countries like Japan, South Korea, China and Russia where their companies can invest and operate, Union minister Suresh Prabhu said. The commerce and industry minister said his ministry has also identified sectors and countries which holds huge potential for investments in India.

    “I have given a target. $100 billion of FDI should come from different sectors into India. It will not happen in one year. We have identified companies, sectors and countries and now we are going for road shows to attract investors,” Prabhu said.

    He said India would remain a top destination for foreign investors in 2019 and the ministry would look at all sectoral issues that may come come in the way to attracting overseas investments.

    “For countries like Japan, South Korea, China and Russia, we are creating industrial clusters where they can invest and operate,” Prabhu said.

    The minister said China has agreed to set up industrial parks in India and the Chinese authorities have been asked to give a list of companies that are willing to set up factories in India.

    Similarly, India would be happy to welcome firms from Europe and the US who want to move out of other countries and set up manufacturing bases in India, Prabhu said.

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  • VN-Index ends year 10 percent lower

    VN-Index ends year 10 percent lower

    The VN-Index closed the last trading day of 2018 at 892.54 points, down almost 10 percent from the year’s outset. This was a drop of 93 points from January 2, the first trading day of the year. The benchmark closed below the 900-point mark on Friday, a drop of over 25 percent from its peak at over 1,200 points in April. The VN30-Index, representing the 30 largest tocks in terms of capitalization, closed at 854.99 points, dropping 10.46 from Thursday, or 1.21 percent lower.

    Many stocks in the VN30-Index also ended in the red. Diary giant Vinamilk closed at VND120,000 ($5.2), 2.6 percent lower.

    Vietnam’s top petro importer and distributor Petrolimex fell 5.69 percent to VND53,000 ($2.3), while food company Masan dropped 1.9 percent to VND77,500 ($3.36).

    However, the HNX-Index on the Hanoi Stock Exchange and the UPCoM-Index for unlisted public companies ended in the green, up 0.24 percent and 0.46 percent respectively.

    Vietnam’s largest private firm Vingroup (VIC) ended the day at VND95,300 ($4.13), 6.93 percent lower. Vincom Retail’s VRE stock dropped almost five percent to VND27,000 ($1.17).

    Total market capitalization of all three stock markets, the Ho Chi Minh City Stock Exchange (HOSE), HNX and UPCoM, was VND4 trillion ($173.25 million).

    2018 has proved the most turbulent year for VN-Index since the 2008 crisis, ending an increasing run since 2016.

  • Vietnam GDP growth tops 7 pct, highest in a decade

    Vietnam GDP growth tops 7 pct, highest in a decade

    Vietnam’s GDP growth of 7.08 percent this year retained its status as one of the best performing economies in the world. It was the highest growth the country has experienced since 2008 and compared with the median estimate of 6.9 percent in a survey of 12 economists.

    The scale of the economy at present value is over VND5.53 quadrillion ($237.38 billion), with average GDP per capita at $2,587 per person, a $198 increase over 2017, Nguyen Bich Lam, head of the General Statistics Office, said Thursday afternoon.

    According the office, the agriculture, forestry and fisheries sector grew by 3.76 percent this year, and contributed to 8.7 percent to the country’s GDP. Corresponding figures for industry and construction sectors were 8.85 percent and nearly 49 percent; and that of the service sector, 7.03 percent and approximately 43 percent.

    Lam said that the consumer price index (CPI) in December 2018 fell by 0.25 percent compared to the previous month. On average, CPI in 2018 increased by 3.54 percent, well below the 4 percent target set by the National Assembly.

    Export turnover for the year is estimated at over $244.7 billion, up nearly 14 percent compared to 2017.

    The FDI sector (including crude oil) still accounts for nearly 70 percent of export turnover, at more than $175.5 billion.

    On the other hand, Vietnam imported more than $237.5 billion the whole year, up 11.5 percent over 2017.

    Overall, in 2018 Vietnam achieved a trade surplus of $7.2 billion.

    “The quality of economic growth has improved,” Lam said.

    The GSO director general explained that labor productivity this year saw an increase of nearly 6 percent compared to 2017, at VND102 million (nearly $4,512) per person.

  • Vietnam FDI disbursement in 2018 tops $19 bln

    Vietnam FDI disbursement in 2018 tops $19 bln

    Foreign direct investment disbursement in Vietnam reached a record $19.1 billion in 2018, a year-on-year increase of 9.1 percent. However, FDI pledges for new projects, capital supplements and stake acquisitions were down 1.2 percent from a year earlier to $35.46 billion, according to the Ministry of Planning and Investment.

    A total of 3,046 new projects have been granted investment certificates since the beginning of the year, with a total registered capital of nearly $18 billion. Nearly 1,170 projects registered to increase their capital by a total of $7.5 billion. The rest of the registered capital was reported in a total of 6,500 instances of capital contribution and share purchases by foreign investors.

    This year, foreign investors injected capital into 18 fields and sectors. The processing and manufacturing industry attracted the highest capital at $16.5 billion, followed by real estate with $6.6 billion, and wholesale and retail sectors with $3.6 billion.

    Japan ranked first in FDI contributions to Vietnam this year, followed by South Korea and Singapore. Localities that attracted the most FDI were Hanoi, Ho Chi Minh City and the northern city of Hai Phong.

    Meanwhile, Vietnam invested nearly $380 million abroad this year, mainly in banking and finance, forestry, and fishing. Vietnamese investors injected capital into 38 different countries and territories, with the highest investment in Laos, followed by Australia, the U.S. and Cambodia.

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  • Gas Malaysia ups natural gas tariff

    Gas Malaysia ups natural gas tariff

    Gas Malaysia Bhd has announced a higher average effective natural gas tariff for the non-power sector in Peninsular Malaysia at RM32.92 per MMBtu, which is 0.7% higher than the current RM32.69 per MMBtu. The revision will be effective from Jan 1, 2019 to June 30, 2019.

    The group told the stock exchange that the government has issued an instruction for the company to effect the natural gas tariff revision starting early next year.

    The average base tariff will be set at RM32.69 per MMBtu.

    Under the gas cost pass through (GCPT) mechanism, a surcharge of RM0.23 per MMBtu will apply to all tariff categories for the period beginning Jan 1 to June 30, 2019. This translates to an average effective tariff of RM32.92 per MMBtu.

    However, for Category A (Residential), the effective tariff rate fell 0.34% to RM23.72 from RM23.80 per MMBtu.

    Gas Malaysia said while the tariff revision has no material impact on its business operations, it is expected to contribute positively towards its financial position for the financial year ending Dec 31, 2019.

    To note, the government has prescribed the Incentive-Based Regulation (IBR) framework which sets the base tariff for a regulatory period of three years from January 2017 and allows changes in the gas costs to be passed through via the GCPT mechanism every six months.

    Gas Malaysia shares closed 0.74% or two sen lower at RM2.69 with 547,300 shares transacted.

  • Vietnam’s four major transport projects on track for completion next year

    Vietnam’s four major transport projects on track for completion next year

    Vietnam is set to complete four infrastructure projects next year, some of them after long delays lasting several years.

    Hanoi’s first metro line 

    The 13-kilometer Cat Linh – Ha Dong metro line is expected to open commercial operations before the Tet Lunar New Year holiday starting February 2, 2019.

    All 13 trains on the route are being trial run every day now, running from Cat Linh Station in downtown Dong Da District to the Yen Nghia Station in the south-west Ha Dong District.The 13-kilometer Cat Linh – Ha Dong metro line is expected to open commercial operations before the Tet Lunar New Year holiday starting February 2, 2019.

    Each train has four coaches, with a total capacity of 1,000 passengers. The stainless steel coaches are approximately 19 meters long. The trains now run at 30-35 kilometers an hour, even though they are designed to reach speeds of 65 kilometers an hour. A complete trip takes about 30 minutes.

    Work on the project is 96 percent complete, officials say, adding that the terminals and depots are “83 percent equipped.”

    Construction of the Cat Linh-Ha Dong elevated railway started in October 2011 and was originally scheduled for completion in 2013. But several hurdles, including loan disbursement issues with China that were only resolved last December, have been stalling the project for years.

    The original cost estimate of $552.86 million has also ballooned to more than $868 million, including $670 million in loans from China.

    Bac Giang – Lang Son expressway

    The expressway connecting Bac Giang Province north-east of Hanoi to the northern Lang Son Province bordering China is expected to be completed next December.

    The four-lane expressway runs 64 kilometers. A 110-kilometer stretch of the existing National Route 1A connecting the two provinces will also be upgraded to be part of the expressway.

    The total project cost has been estimated at VND12.19 trillion ($523.67 million).

    Most of the expressway has been completed. Next year, operators will finish laying asphalt and installing road signs and lights.

    Work on the expressway started in October 2015 and was scheduled for completion last year. However, the  Ministry of Transport had to select a new investor for the project after the original one was found wanting.

    The Bac Giang – Lang Son expressway is part of the Hanoi – Lang Son expressway, connecting the capital with the Huu Nghi International Border Gate in Lang Son Province.

    Cu Mong Tunnels 

    The Cu Mong Pass, lies mostly in Binh Dinh and partly in Phu Yen, is one of the most dangerous passes in Vietnam. The new tunnels are expected to reduce the number of dangerous traffic accidents that the pass has become infamous for. They would also reduce travel time between the two provinces.The Cu Mong tunnels, connecting the southern provinces of Binh Dinh and Phu Yen, are expected to open on January 21, allowing all vehicles to go through free of charge during the February 2-10 Tet holiday.

    The two tunnels are 2.6 kilometers long and 30 meters apart and have a 4-kilometer lead-in road. The tunnels allow a maximum speed of 80 kilometers an hour. For an unspecified first period, only one tunnel will be operated. For now, the second one will be reserved for use in emergencies.

    The tunnels have a total capital of almost VND4 trillion ($171.82 million). Construction started in September 2015.

    Vam Cong Bridge in the Mekong Delta Region

    This is the second bridge over the Hau River after the Can Tho Bridge, which is 48 kilometers away. It is part of the route connecting Can Tho with An Giang Province, built to boost the socio-economic development of the Mekong Delta region.The bridge, which connects the southern province of Dong Thap with Can Tho City, is expected to be operational by next July.

    The bridge was supposed to be completed by November 2017, but authorities found out that a horizonal beam had a crack four centimeters wide and two meters long.

    The Ministry of Transport ordered repairs, and so far 26 out of 38 steps for this process has been completed.

    The bridge’s budget of $270 million was sourced through official development assistance from South Korea and Vietnam’s counterpart funds.

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  • Vietnam labor costs highest among ASEAN comparators

    Vietnam labor costs highest among ASEAN comparators

    Vietnam’s labor cost is the highest among comparator countries in Southeast Asia, a World Bank report says.

    In a report on enhancing enterprise competitiveness and enhancing small and medium-sized enterprise (SME) linkages, it says Vietnam’s labor costs are higher than in comparable Southeast Asian peers.

    It defines labor costs for each firm as the cost of all payments to all workers divided by the number of workers.

    It says wage costs about $2,739 per worker for the median Vietnamese firm, about twice as high as in Laos, Myanmar and Malaysia, and about 30 to 45 percent higher than in Cambodia, Thailand and the Philippines.

    While Vietnam’s labor costs are higher than in the rest of the region, they seem in line with productivity levels and thus do not seem to be a major obstacle to competitiveness, the report says.

    The average manufacturing firm in Vietnam produces about $10,500 worth of value-added per worker per year, higher than in most countries in Southeast Asia. It is around $10,000 in Malaysia, and $5,000 in Cambodia.

    Vietnam’s relatively high value appears to be partly driven by high and growing use of capital, the report says.

    The report also breaks down labor productivity in the country by region. The north-central and central coastal regions of Vietnam have the highest productivity — of almost $16,000 value addition per worker — while the southeast comes in second at $14,000.

    The Red River Delta region has a productivity of only $7,000, and it is even lower in the Mekong River Delta at around $6,000.

    It also said that foreign-owned firms are generally more productive than domestic firms, which can be explained by their easier access to technology and finance through their parent companies.

    The World Bank report also says that capital productivity is low in Vietnam. The ratio of sales to value capital in Vietnam is around 160 percent, lower than in any of its peers in Southeast Asia. The bank’s data confirms that capital might not be used very efficiently in Vietnam.

  • Higher Fed interest rate could weaken Vietnamese currency

    Higher Fed interest rate could weaken Vietnamese currency

    The U.S. recent interest hike might result in a high demand for U.S. dollars in Vietnam, weakening the local currency further, experts say. The U.S. Federal Reserve Wednesday raised its interest rates for the fourth time this year to 2.25-2.5 percent. The Fed has projected two more hikes next year.

    Every time the Fed raises its interest rate, the interest rate for the greenback will increase at international banks, economist Nguyen Tri Hieu said.

    He said that with the interest rate on dollar accounts at Vietnamese banks at zero percent currently, investors might look to deposit their money in international banks for at least 2 percent.

    “This could result in a bleeding of dollars which could lead to a lower supply of the greenback in Vietnam.”

    Hieu added that the smaller supply of dollars will increase its exchange rate against the dong.

    The Fed interest rate increase will pressure the USD-VND exchange rate, as the dollar strengthens further over the dong.

    Local banks will push their interest rates up to prevent their customers from exchanging local currency to the U.S. dollar, he said.

    According to Ngo Dang Khoa, HSBC country head of global markets, another risk is that the U.S. dollar is forecast to be stronger next year, making a weaker dong a high possibility.

    Economist Hieu said that a strong dollar will also increase its exchange rate against the Chinese yuan, which will create even greater pressure on the dong.

    If the dong value remains unchanged, it will become stronger against the yuan, and Chinese exports to Vietnam could increase, resulting in a higher trade deficit than Vietnam has already has with the country, he said.

    However, other observers have said that as the fourth hike has been predicted, the Vietnamese market has prepared itself for the new interest rate and short-term impacts could be mitigated.

    Khoa with HSBC also said that there won’t be major responses from the Vietnam market following this hike, especially the forex market, as investors have already expected the interest rate to be raised.

    The local finance market won’t have to bear major impacts because of the raise, as the State Bank of Vietnam has recently taken measures to control the exchange rate and interest rate to stabilize the market, he said.

    The dong has fallen by some 1.57 percent, against the greenback since the beginning of the year. The dong hit 23,419 to the dollar on Friday.

    Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.