Gold prices soar to 6-year high on geopolitical factors, weak dollar

July 01, 2019 - 09:00
In the last one month gold prices have jumped by over VNĐ3 million per tael, or 1.2 ounces, to reach their highest levels in many years.
In the last one month gold prices have jumped by over VNĐ3 million per tael, or 1.2 ounces, to reach their highest levels in many years.— VNA/VNS Photo
HÀ NỘI — In the last one month gold prices have jumped by over VNĐ3 million per tael, or 1.2 ounces, to reach their highest levels in many years.

On June 26 Sài Gòn Jewellery Company bought a tael of SJC gold for VNĐ39.1 million and sold it at VNĐ39.42 million. Prices have so far peaked at VNĐ39.25 million and 39.5 million.

Hà Nội-based DoJi Group’s gold has climbed to VNĐ39.3 million and VNĐ39.8 million. Its gold jewellery has breached the VNĐ40 million mark.

The sharp price hikes mean the volume of gold sold daily by investors has increased by five to six times.

Globally, on June 25 prices rose by US$35 per ounce to $1,420, the highest level since September 2013.

According to KVIA ABC  News website, gold prices have now leapt by nearly 10 per cent this year.

So why is the precious metal regaining its glitter?

One of the reasons is the expectation of a rate cut by the US Federal Reserve as early as next month.

Rate cut hopes have pushed the dollar lower, and gold tends to appreciate when the dollar gets weaker because that makes it more attractive to foreign buyers.

Indian financial daily Livemint said investors flocked to gold this year due to rising geo-political tensions.

As if the US-China trade war wasn’t enough, US-Iran tensions had escalated lately too, it said.

Eun-Young Lee, an analyst at Singapore’s DBS Bank, said in a report: “This (US-Iran tension) has likely stirred up investors’ appetite for the safe haven asset, adding to the uptrend in gold price that started in early May, even as the US Federal Reserve turns increasingly dovish and the US-China trade tensions prolong."

Just since May 1 prices of the metal have risen by around 9 per cent.

Any fluctuation in the dollar rate has an impact on gold prices since in most countries they are dollar-denominated.

Finally, there is the safe haven status for gold. Whenever investors lose confidence in dollar assets they promptly switch to gold as a hedge against risk.

In Việt Nam, analysts warn that the sharp increase in the prices would have an impact on bank deposit interest rates and foreign exchange rates.

The highest annual interest rate that local banks are offering is 8.6 per cent on deposits while gold prices have risen by 8.2 per cent in just 25 last days.

People are likely to withdraw their savings from banks to invest in gold, putting pressure on deposit interest rates.

Experts say both the gold and forex markets are affected by the same factors: global politics, war and the threat of instability.

Analysts say though gold prices are recovering at home and globally, investors should thoroughly study information about gold and foreign exchange rates and think carefully before investing in the metal.   

Acquisitions dry up in banking sector

Mergers and acquisitions have declined significantly in Việt Nam in the last three years.

According to market observers, M&A activities in the banking sector began in 2007 when the country became a member of the World Trade Organization and opened its financial market to foreign investors, allowing foreign banks to expand their operations and establish subsidiaries.

The influx of foreign banks intensified competition in the market, giving rise to a flurry of M & A activities.

Most M&A deals, particularly big ones, involved foreign investors buying stakes in local banks.

In 2007-08 there was an M&A boom with at least 10 deals being successfully carried out.

In 2011 Japan’s Mizuho paid US$657.3 million to buy a 15 per cent stake in Vietcombank.

A year later Japan’s Bank of Tokyo-Mitsubishi UFJ bought a 20 per cent stake in Vietinbank for $743 million.

But in the last three years there have been no significant deals.

Analysts point to some policy reasons for this reduction in M&A deals in the banking sector.

For instance, Circular No.39/2016/TT-NHNN now prohibits banks from borrowing money to buy stakes in other credit institutions.

The State Bank of Việt Nam’s efforts to stop cross-ownership within the banking system have also contributed to becalming the M & A market.     

The central bank has announced stringent regulations against cross-ownership.

Thus, major shareholders in credit institutions and their relatives are not allowed to own 5 per cent of another bank.

Harsh penalties have been imposed on banks failing to bring their ownership in other credit institutions to below 5 per cent. They include possible rejection of proposals regarding top positions such as members of board of directors and supervisory boards and CEO.

Credit institutions are not allowed to lend to major shareholders and their relatives unless their holdings in other credit institutions are less than 5 per cent.

As a result of these efforts, cross-ownership in the banking system has almost been eliminated, according to a recent SBV report. Seven credit institutions used to own stakes in competitors in 2012.

Direct share ownership between banks and enterprises had also fallen from 56 pairs in 2012 to one: the Asia Commercial Bank (ACB) with the Hoa Phat-A Chau Real Estate Company . In particular ACB owns 2.86 per cent of the Hòa Phát-Á Châu Real Estate, and in return the Hòa Phát company owns 0.06 per cent of the ACB.

A senior financial expert explained that a lack of investors with deep pockets is another reason for the fall in number of M & A deals in the banking sector.

In addition, foreign investors which want to own stakes of Vietnamese banks do not have many opportunities to realise their desire since the foreign ownership ratios at large-scale Vietnamese banks including Vietinbank, Techcombank and ACB were almost used.

On the other hand small and medium-sized banks are not really attractive to foreign investors, he said.

Some lenders that had to be sold, CBBank, OceanBank and GPBank, interest some foreign investors but negotiations have yet to be wrapped up.

But many experts believe the M & A market is set for a strong recovery.

Weak banks have to take recourse to M & A deals to improve their finances to meet international norms as they are required to.

Besides, more and more foreign investors are interested in the Vietnamese banking sector and have entered into negotiations.

HDBank general director Nguyễn Hữu Đặng said the lender expected to complete the takeover of PGBank by the end of this year. 

Vice chairwoman Nguyễn Thị Phương Thảo said the merger would help expand the customer base.

Another reason that encourages the banks to pay more attention to M&A transactions is the Government’s policy of restructuring credit institutions with many legal policies that have helped the lenders be easier to settle bad debts and secured assets, making them more confident in making deals. —VNS