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Investors change tack, remain indifferent as gold slides

Update: October, 17/2016 - 10:13

Compiled by Thiên Lý

At noon on October 5 gold prices fell by VNĐ510,000 per tael to VNĐ35.54 million (US$1,580).

They were tracking global prices which had declined by 3 per cent to over $1,273 per ounce (equivalent to VNĐ34.3 million per tael).

The rate has continued to fall since as global prices have dropped further.

The precious metal is expected to continue falling after the US announced the economy recovered significantly and its unemployment rates were kept stable for several months.

Market observers attributed the drop in gold prices to many reasons, one of them being the likelihood of the US hiking interest rates in the near future, possibly in December.

The US economy is thought to be strong enough now for the Federal Reserve to increase rates.

If the interest rate goes up, the dollar will strengthen, and the currency has traditionally had an inverse relationship with gold though that has been changing lately since both are safe havens in times of distress.

The analysts said the global economic recovery, particularly in the US, is also an important reason for the sharp fall in gold prices.

Others said gold prices rose to too high levels in the first half of the year and so there is an inevitable correction now.

But there is a strong contrarian view that says gold is still attractive as an asset class.

These pundits’ rationale is that the US inflation rate remains very low and negative interest rates persist in Europe and Japan.

This is a good time to buy gold is their verdict.

With opinion thus divided, many analysts are advising Vietnamese retail investors to be very cautious about buying gold, warning the risks are too high.

It appears that many people are taking this advice seriously: despite the sharp fall in gold prices, the market has been rather quiet unlike in the past when people would flock to buy gold when prices went down.

At the Phú Nhuận Jewelry Co.(PNJ) only around 100 taels are being traded in a day.

A DOJI spokesperson revealed that people buying gold these days at its shops account for only 65 per cent of the total number of transactions. 

Bank restructuring to continue

In the last 16 years the banking system has been restructured three times with dozens of banks involved in the process.

The first time, lasting from 1998 to 2003, one bank had its licence cancelled, nine other lenders merged and four were converted from rural to urban joint stock banks.

In the second period of the restructuring process (2005-2008), 12 rural joint stock banks were turned into urban joint stock lenders.

The latest round of restructuring from 2011 to 2015 saw nine banks being merged, with some of them already being restructured. They include SCB, Navibank, WesternBank, and GPBank.

The biggest benefit derived from the latest round of restructuring is that the banking system has escaped a very real threat of collapse and become stable in the process.

Order and security have been established again and liquidity has improved significantly.

But admittedly, many of the restructured credit institutions have not yet improved their organisational structure or systems.

The consequence is that they still face many difficulties, particularly with regard to the financial ability and liquidity.

Western Bank, for instance, after its merger with PetroVietnam Finance Joint Stock Corporation (PVFC), a subsidiary of the national petroleum conglomerate PetroVietnam, saw its assets and capital balloon while business results remained modest.

Last year WesternBank’s losses were estimated at VNĐ500 billion.

TrustBank, OceanBank and GPBank were bought by the central bank at a price of zero đồng. It is worth noting that their bad debts now still account for up to 30 per cent of the system’s total.

Others like ĐôngABank and Eximbank have also faced many difficulties after restructuring.

Among the restructured banks, only TPBank’s fortunes have been rising. Two years after being restructured, its legal capital went up from VNĐ3 trillion to VNĐ5.55 trillion, while its profits were VNĐ500 billion last year.

Its deposits and credit growth have both doubled. Its bad debts ratio decreased from 6.4 per cent to 2.7 per cent.

But there are still 12 credit institutions with chartered capital of VNĐ3-4 trillion, meaning they need to be restructured to increase their capital to adapt to the country’s global integration, which requires them to have deeper pockets and good management and technologies.

In face of the situation, the central bank is preparing a project to continue with the restructure of the banking sector in 2016-20.

The biggest objective of this process is to completely settle the bad debt issue and get rid of weak banks.

Yuan becomes global reserve currency; what does it hold for Việt Nam

On October 1 the Chinese yuan was added to the International Monetary Fund’s basket of global reserve currencies, which also has the US dollar, Japanese yen, euro, and the British pound.

This is believed to be a further step in the Chinese currency’s journey to become more important to the world economy.

But the addition has also raised concerns about its impact on Việt Nam’s trade activities because China is its biggest importer and the fourth biggest exporter.

Bilateral trade is expected to top US$100 billion this year, one year earlier than planned.

Last year it was worth $95.8 billion, with China’s exports accounting for $66.1 billion.

Because of China’s importance to the Vietnamese economy, many experts fear that any change with respect to the yuan will affect it, particularly trade.

They said being part of the IMF’s reserve basket of currencies would make the yuan stronger, and Chinese businesses would make greater use of their currency in commercial transactions. This is likely to increase the price of Chinese materials and equipment.

This would increase production costs of Vietnamese goods since nearly 30 per cent of materials and equipment used by Vietnamese enterprises is imported from China.  

But some analysts and business executives believe that Vietnamese companies likely to benefit, particularly those in the garment and textile industry, which import huge volumes of feedstock from China.

But they said the central bank should be prepared to interfere to ensure there is no great volatility in the exchange rate between the đồng and the yuan. — VNS

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