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Higher dollar will have positive impacts on stock market?   2011-02-18 - Viet Nam Net

Experts believe that the move by the State Bank of Vietnam to raise the interbank exchange rate by 9.3 percent will reassure people about the efficiency of the State Bank’s market management, thus creating a positive impact on the stock market.




Commenting on the impact of the exchange rate adjustment, the biggest since the 1997 Asian financial crisis, the analysis team of FPT Securities Company say that in short term, the move will have positive impacts on the stock market, because investors will have more Vietnam dong to make transactions. Especially, in when the stock market is reliant on foreign investors’ transactions, the stabilization of the exchange rate will be important.




“We believe that the stock market will be stabilized this week and it may witness the growth again after the correction period,” the analysts say




Observers say that the exchange rate adjustment will most negatively affect import enterprises and the foreign investors who have disbursed their money. With the latest adjustment, the new ceiling dollar price has soared to 20,900 dong per dollar from the previous level of 19,500 dong. As the dollar has become more expensive, importers will have to bear higher taxable prices.




However, experts believe that the exchange rate adjustment will have more positive than negative impacts. Previously, the exchange rate announced by the State Bank hovered around 19,000 dong per dollar, which was far below the actual exchange rate at 20,800-21,000 dong per dollar. The gap between the announced and the actual exchange rates made people think that the exchange rate announced by the central bank was meaningless/ineffectual/unreliable?. Meanwhile, some institutions abused/took an unfair advantage of the big gap to make profit. Therefore, the adjustment, will level the playing field for all enterprises.




Even foreign investors, believed to be most affected by the exchange rate adjustment, are not pessimistic Dau tu newspaper quotes Nguyen The Lu, General Director of Saigon Asset Management Corporation, as saying that though the exchange rate adjustment will affect the net asset value of foreign funds which have converted their capital from dollar to Vietnam dong, he still believes that the adjustment is necessary. He adds that most foreign investors want to see the exchange rate stabilized.




Meanwhile, Thoi bao Kinh te Vietnam believes that it is too early to tell whether the exchange rate adjustment will attract more foreign capital.




A question has been raised about the possibility of furtheradjustments, after the latest 9.3 percent dong devaluation. Analysts believe that the predictability is the most important factor for foreign investors.




According to VCBS, it is too optimistic to expect foreign capital to flow into Vietnam in larger volumes and boostthe domestic stock market in the time to come. Foreign investors will not feel secure until the exchange rate stabilizes and the depreciation of the local currency stops.




The uncertainties of the exchange rate and the continued depreciation of the dong is the biggest worry for foreign investors. The State Bank of Vietnam has been continuously adjusting the exchange rate since 2008. After no less than ten adjustments, the dong has lost 28 percent of its value, thus eroding the confidence in the stability of the currency.




Meanwhile, SME Securities believes that the macroeconomic stability will be the main factor to determine the scale of foreign capital flow. The exchange rate policy and inflation rate, the two most important factors in the eyes of foreign investors, will only be stabilized in the second half of 2011. Therefore, one should not expect new investment funds in the first half of 2011.

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