Monday, June 25, 2012

Vietnamese economy: undertaking necessary reforms

In the face of slowing global growth, the Vietnamese economy remains well positioned to continue to grow this year , even as other export-dependent economies around the world struggle.


The Vietnamese economy grew 4% year-over-year for the first quarter, and that number is expected to jump to 4.3% for the second quarter.

By year's end, the government projects the Vietnamese economy's growth rate to reach 5.5-6% on an annualized basis. Although some analysts remain skeptical, the Vietnamese government sees growth reaching 6.5% in 2013.

The current resilience of the Vietnamese economy is in large part due to proactive policy on the government's part that has ameliorated some of the previously weaker facets of the economy.

Take for example inflation. Earlier this year, inflation in Vietnam soared to around 20%.

By employing measures to ensure that inflation did not spiral out of control, the headline inflation number is down to a much more manageable 8% - a reasonable number for a fast-growing, emerging economy.

Now, the central bank has more flexibility to cut rates in order to bolster growth without having to worry about exacerbating inflationary pressures.

The central government has also committed to necessary reforms in other areas of the economy that need liberalization.

Although some observers feel the reforms are behind schedule, the central government has already commenced the process of restructuring the banking system , state-run enterprises, and investment regulations in 2012.

In particular, the government is looking to consolidate the stock market and improve credit quality in the banking system.

While reforms to the banking and investments sectors are expected to stretch out over five years so as to avoid abrupt shocks to the system, the Vietnamese government is at least attempting to tackle the problem.

Other economies have a tendency to delay tough reforms in favor of maintaining the status quo, with dangerous long-term consequences.

Like Turkey , the Vietnamese government seems committed to implementing necessary economic reform to ensure that long-term growth for this exciting Southeast Asian economy remains on track.

The Vietnamese ETF is up 25% year-to-date, although down by more than 10% over the past few months.

However, in the event of a European-related pull back, long-term investors should consider going long the Vietnamese economy.

nasdaq.com

No comments:

Post a Comment