Abundant Liquidity But Limited Investment Channels

Viet Dragon Securities Company (VDSC) had just released a thematic report on the economy in the second half of 2020.

The report said that although the growth rate of money supply in the first six months decreased significantly compared to the same period last year, from 6.05 percent to 4.59%, the credit growth rate halved to 3.26%, bringing the money supply and credit gap high. Bao Viet Securities Company (BVSC)’s experts believed that this trend was likely to maintain in the remaining months of 2020 for two reasons as follows.

First, on money supply, despite the epidemic’s increasing impact on new foreign direct investments (FDI) and exports, the State Bank of Vietnam (SBV) had increased its US dollar reserves in the first seven months of 2020 thanks to a trade surplus increased sharply and FDI disbursement decreased slightly. The trade surplus might continue to increase because while businesses were afraid to import goods to expand their business, exports were likely to go sideways. Besides, although public investment disbursement increased by 27 percent in the first seven months of the year compared to the same period in 2019, the government had only completed 43 percent of the whole year plan, the rest of the disbursement plan was still very large and would add to the money supply.

Second, although the government had set a credit growth target of 9 percent to 10 percent for 2020, the demand for credit would not improve much in the rest of 2020 due to low consumer demand at home. Major locations and export markets would limit firms from building or expanding production. Moreover, the demand for credit in real estate was also low. While the supply of apartments in Hanoi and Hochiminh City decreased over the same period, the absorption rate also decreased. The real estate picture over the next few months would continue to be affected by concerns about Covid-19 and lack of foreign participation.

The VDSC report also said that in the context of the economy was abundant in liquidity, investment channels were limited.

For real estate, although apartment rental prices had decreased recently, average prices in Hanoi and Hochiminh City still increased slightly. Meanwhile, although the domestic gold price had risen sharply after seven months and outperformed most other assets, recent news on the progress of vaccine development might cause gold prices to reverse.

For bonds, the new Decree on corporate bond issuance that would come into effect in September 2020 would limit the issuance of new corporate bonds in Q4/2020 due to the gap between two consecutive issuances. According to the Ministry of Finance, individual investors actively participated in the corporate bond market with a stake of 27 percent of total corporate bonds outstanding in the first six months of 2020, rose from 9 percent in 2019.

As for other fixed-income assets, banks had lowered deposit rates due to excess liquidity in the banking system in the context of slow credit growth.

 

Category: Finance, Vietnam

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