International hot money flows still bypass Vietnamese bond market

Do Ngoc Quynh

Do Ngoc Quynh, Vietnam Bond Market Association's (VBMA) general secretary, told VIR that things would soon change as the domestic bond market had potential.

Besides the currently unfavorable macroeconomic conditions, what are reasons that hot money is ignoring Vietnam's bond market?

In the recent post-crisis period economic rebounds, hot money flows from Europe and the United States continue to pour into emerging markets, particularly Asian economies. Several markets like Thailand and Korea have had to deal with these hot money flows to prevent macro economic volatility or uncertainties.

In the meantime, these flows have not arrived into Vietnam even as 2010 macroeconomic data improves. However, if looking into inflation, the external trade balance and exchange rate, Vietnam market is not a favourable destination. While regional currencies are appreciating against the US dollar, the Vietnamese dong is depreciating.

Additionally, high inflation causes pressure to higher lending rates and large trade deficit is also a concern. The bond market is largely influenced by macroeconomic movements. Therefore, unfavourable macro conditions made the country’s bond market less attractive than other neighbours like Thailand, Indonesia and Philippines in luring foreign investors in the bond market.

What are foreign investors looking for if they decide to invest in Vietnam’s bond market, in your opinion?

Comparable returns are the number one goal for investors when they decided to invest in any markets. Additionally, the safety ratio basing on credit ratings, market size, liquidity, trading infrastructure, legal system and costs will be among conditions for consideration.

Therefore, in order to compete with other regional rivals in attracting foreign investors, beside improving macroeconomic conditions, it is necessary for Vietnam to study a master plan for the development of the country’s bond market.

What will the VBMA do in the short-term to assist attracting foreign investors in local capital markets including the bond market?

Despite several limits, some foreign investors still consider that Vietnam’s bond market has potential. However, some foreign investors said they had few updated information about the domestic market and the VBMA is trying to cooperate with relevant authorities to solve this obstacle.

Specifically, the VBMA will organise a Vietnam bond investors conference in January 2011 with the participants of both foreign and domestic investors as well as market regulators. VBMA believes this conference and the country’s sustainable economic recovery in 2011 will be a positive signal for foreign investors to eye Vietnam.

Historically, short-term money flows will change into longer term capital flows if macro economy stabilises for sustainable growth.