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SINGAPORE: The Vietnamese economy appears to be finding its feet again, fighting off talks of a currency crisis.
Market sentiment has improved in recent weeks, thanks to better macroeconomic data. The trade deficit is declining, while inflation is seen to be improving.
Analysts said those with a strong stomach for risk may want to think about putting money back into Vietnam. HSBC said government bonds over there are starting to look attractive, although not without downside risks.
Prakriti Sofat, Asian economist, Global Markets, HSBC, said: "The risk obviously remains if the central bank was to ease policy in any way that would come back to haunt the forex market...
"I guess if there's a massive recognition of easing of policy, then inflation concern could come back to haunt markets and yields would pressure up."
However, analysts noted that the government seems to be focusing on inflation right now, after bouncing back and forth between growth and inflation issues over the past year.
The Vietnamese government cut back on some US$2.5 billion worth of projects in July, but consumer spending has remained strong, implying that the underlying economic structure is firm. After stripping out inflation, consumer spending was still up by 5 to 10 per cent in July.
Tai Hui, regional economic research head, SE Asia, Standard Chartered Bank, said: "Businesses still need to take into account the difficult operating environment that is likely to persist within the next six to 12 months, which includes higher interest rates."
While analysts are divided on whether Vietnam's government can engineer a soft landing for the economy, they said they are comfortable with the longer term direction.
"The structural development, membership of WTO and an increasing willingness to open trade are offsetting the cyclical slowdown right now. So if you look at export performance of Vietnam in the past year or six months, it is still expanding at 20 to 30 per cent," said Tai.
The Vietnamese government has a growth target of 7 per cent for 2008.
- CNA/so
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