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Can SBV intervention help gold trade?

Update: March, 11/2013 - 10:17

(VNS) In March the gold bullion market has seen some important policy changes that allow the central bank to strongly intervene to stabilise it and enlarge the country's reserves.

On March 4 the Government allowed the State Bank of Viet Nam to trade gold bars.

This is expected to help protect gold investors and consumers and narrowing the gap between domestic and global prices, helping stabilise the market in the long run.

One mode of intervention is by pumping large volumes of its gold bars through auctions into the domestic market to redress the imbalance between supply and demand.

Through the auction, the central bank can adjust the prices of bullion, bringing domestic gold prices down closer to global prices.

The SBV decided to conduct a trial auction with the participation of banks and gold trading businesses to ensure that the mechanism can be run smoothly.

On March 5 it placed at which 52,000 gold bars under the hammer with a reserve price of VND43.65 million per tael.

The SBV is set to begin auctioning bullion in "7-10 days' time."

But the jury is still out on the effectiveness of the central bank's intervention.

This is because soon after the announcement about the auctions came, the gap between global and domestic prices dropped to the record low of VND2.8 million ($119) per tael (1.2 ounces) on February 28, down from VND5.4 million a week earlier. But the difference quickly surged back to VND4.25 million by March 6.

The SBV governor is on record as saying the appropriate gap should be VND400,000.

With the current imbalance in supply and demand, the central bank is unsure if it has enough gold to intervene in the market for a long time.

It is expected that people will continue to buy gold as long as the Vietnamese and global economies remain mired in difficulty.

Thus, if the central bank continues to pump more bullion to stabilise the market, it could enable a return to "goldisation."

To ensure a stable market and narrow the price gap, the central bank, besides selling gold, should also carry out measures like setting up a national gold trading floor, weaning people away from the habit of trading physical gold, and allowing gold trading on account.

Measures to combat inflation, stabilise the economy to increase trust in the dong, and change people's habit of keeping their savings in physical gold should also continue to be implemented seriously.

Instalment plans

Tran Thanh Hai works as an engineer at the Sai Gon Beer Company, earning around VND7 million a month.

Thanks to his thrifty lifestyle he saves around VND3 million a month.

Six years into his job, he has saved a certain amount of money, but he does not dare dream of buying a house with the modest amount.

As a result, he has continues to lease a house whose rent rises constantly.

Hai hopes to own a house one day if developers of low-cost housing allow people like him to pay for their apartments in instalments.

While property developers are sitting on thousands of unsold apartments, many people, particularly in major cities like Ha Noi and HCM City, do not own a house.

But selling apartments under instalment plans has yet to become popular since developers are reluctant considering the risks and the time it takes them to recoup their investment.

Besides, most of them lack the deep pockets this requires and themselves depend overwhelmingly on bank loans.

Even bank mortgages do not work since even for an apartment worth a billion dong or less, a buyer will have to pay a few million dong or more every month, a huge amount in a country where the average wage is only a few million a month.

To encourage developers to sell on high-purchase, the Government needs to provide them tax breaks.

VN's foreign investments begin to pay off

According to the Foreign Investment Agency, Vietnamese firms have invested US$12.4 billion abroad and are beginning to enjoy the payoff.

They repatriated profits of $430 million last year.

The most successful firms are in the petroleum, telecom, and rubber industries.

Viet Nam National Petroleum Group (PVN) was a pioneer in investing abroad, investing in 14 countries and getting access to oil reserves of 170 million tonnes there.

Revenues

Last year its overseas revenues were $587 million, taking the total so far to $1.23 billion.

FPT Corporation has achieved quick success after investing abroad in recent years.

The company obtained $90 million, up by 30 per cent as compared with the figure in 2011. Of the turnover, most of them were generated from supplying software products.

The company now plans to expand investment to other markets like India, Europe, Japan, the US, and Myanmar.

Last year Vietnamese companies invested $4 billion in 224 projects in Laos.

Most are in growing and processing rubber and sugarcane, and the investors include Hoang Anh Gia Lai Group (HAGL), Corps 15, Bidiphar Rubber Joint Stock Company, Viet Nam Rubber Group, and Dak Lak Rubber Joint Stock Company.

HAGL was one of the first Vietnamese companies to invest in rubber production in Laos.

Its investment in Laos has topped $900 million in 25,000 hectares of rubber plantations and 6,000ha of sugarcane fields. The company hopes to expand to 100,000ha in future.

The Ministry of Planning and Investment said that by the end of last year Viet Nam had 104 projects in Cambodia with a registered capital of $2.42 billion, 4.4 times the 2009 figure.

Most of them are in telecom, agriculture, financial services, and consumer products.

The Viet Nam Military Telecommunications Group (Viettel) has led Vietnamese investment in telecom in many countries, including Cambodia, Laos, Haiti, Peru, Mozambique, and Cameroon.

In 2011 the company transferred $40 million in profits to Viet Nam, and this is expected to increase to $76 million this year.

After 20 years of investing abroad, Vietnamese firms are reaping the results, benefits themselves as well as the country.

But a question for the Government is how to manage these investments in such a way as to ensure they do not affect job creation at home and the country's foreign currency reserves. — VNS


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