Dong appreciates on rising dollar inflows

March 05, 2012 | 06:49

(0) user say

Strong foreign cash inflows could be behind the recent sharp appreciation of the Vietnamese dong. Vietcombank statistics revealed dong appreciated around 1.15 per cent against dollar in the year to date, a move that might surprise investors.

Before 2007, dong depreciated against dollar at an annual average rate of 1 per cent. Looking back over the last 15 years, dong appreciated in only one calendar year 2007, at around 1 per cent, when strong foreign portfolio investments arrived to trade Vietnam’s securities, according to HSBC statistics.

In 2007, foreign portfolio investors heavily brought dollar in Vietnam to buy dong to trade Vietnamese stocks, pushing the market to skyrocket to an all time high of 1,173 points.

Dragon Capital CEO Dominic Scriven said that in late 2011, the market was worried that dollar loan redemptions and the traditionally high demand for dollar before Tet holidays would pressurise dong. But instead, dong got stronger thanks to a decelerating inflation, a falling trade deficit and rich foreign cash inflows.

Scriven said given the very low market liquidity, the recent constant net buy from some new institutional foreigners and exchange traded funds (ETFs) had pushed the market up by over 20 per cent from the bottom.

Vietnam Market Vectors and Vietnam DB ETF have received a net inflow of about $14 million during the year to date. Market observers said that with the current relatively low stock market valuation compared to regional peers, foreign portfolio money had landed in Vietnam to buy local assets including equities.

Still, Ho Chi Minh City Securities Corporation’s head of research Fiarchra Mac Cana said dong appreciation was tiny and related to the application of a tight monetary policy especially low money supply growth since last year.