Tag Archives: Vietnam banking

The Cost of Living with Big Macs in Vietnam

Now that McDonalds opened its first restaurant in Vietnam this month, it will take a while to measure the effect on Vietnamese consumers — hungry for all things American but leery of the potential health consequences.  But the fast food giant already has made a significant contribution to anyone considering living in or visiting Vietnam — thanks to Big Macs.

The entry of the company’s trademark oversized hamburgers on the streets of Saigon has immediately made Vietnam a member of The Economist’s Big Mac Index.  The index is an elegant (though obviously imprecise) measurement of purchasing power in countries where McDonalds sells Big Macs.

So now we know that the Big Mac sells for the equivalent of $2.84 in Ho Chi Minh City, considerably less than the $4.62 price in the US.  By comparison, the extremes in Big Mac pricing are $7.80 in Norway and $1.54 in India.  The Economist arrives at those numbers by dividing the price charged at McDonald’s by the official exchange rate of the country; In Vietnam, consumers pay 60,000 Vietnamese dong for a Big Mac, and the Economist used 21,090 as the exchange rate.

What’s interesting about this is that the index indicates the actual cost of living in Vietnam — as opposed to the implied cost you get from the official exchange rate.  In this case, it suggests Vietnam is much cheaper than you’d expect.  In fact, if a Big Mac (and presumably everything else) cost as much in Vietnam as in the US, we’d be getting 12,975 VND for our dollar rather than the 21,090 the bank offers.

Purchasing Power Parity is a relatively good way of understanding the true cost of living in a foreign country, but it is tends to be subject to the biases of whoever calculates it.  The Big Mac Index is a convenient way to demonstrate that Vietnam is an inexpensive place to live — at least until McDonald’s raises its prices there.

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How Vietnam Handles Corporate Malfeasance

Not long after Wall Street brought down the global economy five years ago, Vietnam experienced a series of corporate scandals that — like the American banking crisis — has stalled its economy ever since.  This week two top business executives learned that the consequences of corporate malfeasance are different in Vietnam than in America.  They were sentenced to death.

A Vietnamese court imposed the ultimate penalty on two senior executives of the state-owned shipping company Vinalines.  The men had been accused of embezzlement, and Vietnam’s authorities decided to send a message to its own business executives — and to wary foreign investors — that they take corruption seriously.

Last year Vinalines nearly collapsed under $3 billion of debt in one of several high profile scandals at large state-run companies.  Its former chairman Duong Chi Dung and CEO Mai Van Phuc were given the death penalty for embezzling $1.5 million.  Eight other former executives of Vinalines and other state-owned companies  were sentenced to between four and 22 years in prison.

Last month a former banker and his business associate at a large state bank were sentenced to death for embezzling $25 million.  Last year nine former executives at the state shipbuilder Vinashin were given lengthy jail terms after the company nearly collapsed in 2010 under billions of dollars of debt.

If the penalties seem harsh, they are explained by more than resentment of ordinary Vietnamese people who blame corruption and mismanagement for the country’s sluggish economy.

Another consideration is foreign governments and corporations that have been looking for signs that Vietnam’s government can be trusted to protect their investments.  That’s not a significant concern in the US, which helps explain why nobody on Wall Street has gone to the gallows.

 

The Human Resource Opportunity in Vietnam

Over the past five years, Vietnam’s millions of young, motivated, and educated workers have experienced hard times, with 30% of employees in the banking industry losing their jobs.  The situation is about to change, and that’s a golden opportunity for global human resource firms.

The economy is starting to improve, and as it does the labor market is expected to see more mergers of foreign and domestic human resource businesses — especially online services for Vietnam’s burgeoning Internet users.

So far this year, the American company CareerBuilder has bought Vietnam Online Network (VON) which owned one of the biggest job websites in Vietnam. Also, a Japanese investor bought 90% of the domestic site Vietnamwork for $22 million.  And other foreign groups — including JobStreet, Asia’s biggest online job resource — are reportedly scrambling to make deals with domestic firms that have high volumes of Internet visitors.

All of this activity reflects a dramatic change in behavior over the past five years.  Workers have shifted from print media to the Internet to look for jobs.  Vietnam Internet Center research finds 31 million people (more than a third of Vietnam’s population) using the  Internet.

That number is growing rapidly.  The job market in Vietnam is expected to surge.  And that means opportunity for human resource firms.

 

 

Vietnam’s Losses on the Road to Recovery

Vietnam financial portal StoxPlus says more than a tenth of Vietnam’s publicly traded companies (60 of 500 reporting so far) announced losses in the first quarter of this year.

At this stage in Vietnam’s slow recovery, the losses are no surprise to investors, most of whom appear to be anticipating better results later this year. Vietnam’s leading stock index is up nearly 18% so far this year.

Small banks and securities companies have been hit hardest because of bad loans and less trading in the stock markets.  Brokerage revenues for most securities firms shrank — Sacombank Securities (SBS) reporting losses of $700,000, Dong A Securities (DAS) $310,000), Vina Securities $250,000 and Maritime Bank Securities $250,000.

Vietnam’s fragile economy also has been hard on the construction industry, especially building material firms.   For example, six of the seven businesses under the umbrella of the Viet Nam Glass and Ceramics Corp (Viglacera) reported losses.

Shipping has been another weak sector, with Viet Nam Ocean Shipping (VOS) reporting the worst results, a $4.6 million loss, but the tide will turn.

Can Vietnam Escape the Middle Income Trap?

The International Monetary Fund says Vietnam’s economy will grow significantly slower than expected this year and next because the government is dragging its feet on needed reforms.  Vietnam may be falling into the dreaded middle-income trap that describes nations that pull themselves out of poverty but get stuck on the path to prosperity.

The IMF had projected 5.8% growth in Vietnam this year and 6.4% next year but now projects 5.2% for both years.  That may not seem like a lot, but it’s IMF’s biggest reduction in Southeast Asian other than Singapore — and it represents a big change compared to the outlook five years ago when Vietnam’s economy was flying high.

Vietnam’s problem, the IMF says, is the country is moving too slowly on the reforms everybody knows are necessary — especially privatizing state-own companies, overhauling the financial system, and creating an asset management company to manage bad debt.

The country is said to be lacking clear action steps to get its economy back on track.  The IMF says Vietnam needs to be decisive and accelerate banking and state-owned enterprise reforms.

Investors have been relatively patient so far, pushing the VN Index up 17% this year.  But Vietnam’s opportunity to replicate the economic success of Asian predecessors Japan and South Korea seems to be slipping away.

Vietnam’s Rising Competitiveness

The US Council on Competitiveness says Vietnam will join economic leaders China, India and Brazil among the 10 most competitive economies five years from now, based on data from 550 corporate leaders.

Vietnam is forecast to move from 18th to 10th and surpass Indonesia, Malaysia, and Thailand — while the US, Japan and Germany will face a fierce challenge to maintain their competitiveness.  Within a decade, 10 Asian economies will be among the world’s 15 most competitive.

One reason Vietnam will be a leader among them is that the country appears to be emerging from five years of economic instability.  The government has taken a series of sometimes-contradictory measures to deal with inflation, bankruptcies and a commercial banking system that nearly collapsed under bad debts.

Now the economy is slowly recovering as inflation has been tamed somewhat  and export revenue surged 18% last year to $115 billion.

Vietnam’s challenge for this year is to stop a vicious cycle of falling purchasing power, rising inventory, falling production, rising bad debt, and declining credit — at the same time the fragile global economy offers a weakening market for Vietnam’s exports.

The government hopes to get inflation below 8% along with 5.5% economic growth this year by (1) reducing inventory, (2) tackling bad debts and (3) improving the real estate market.

The Council on Competitiveness report appears to anticipate Vietnam’s measures will be successful in the long run.

 

How to Invest in Vietnam’s Hot Stock Markets

Investors large and small, and foreign as well as domestic, can buy and sell stock in hundreds of Vietnamese companies that are listed in two separate exchanges, one in Hanoi and one in Saigon.  To trade individual stocks, foreign investors need to go to Vietnam, obtain an investment license, and establish a relationship with a brokerage and a bank to handle transactions.

However, there are too easy ways for foreigners to invest in Vietnam’s public equity markets without leaving their desktops or smartphones or traveling outside the office or home.  Both involve purchase of funds traded on international markets, which can be accomplished in minutes online.

The funds are:

  1. VNM  — Market Vectors Vietnam is an exchange traded fund incorporated in the US.  The fund is designed  to replicate the performance of Vietnam’s overall market, but at times has been overweighted with financial companies.  It invests 80% of  assets in securities that comprise its benchmark index.
  2. VCVOF — Vietnam Opportunity Fund is a thinly traded  $672 million investment company incorporated in the Cayman Islands and actively managed by VinaCapital’s team of investment professionals based in Vietnam. The fund aims for capital appreciation and income by investing in listed and unlisted companies in Vietnam and, in some cases, elsewhere in Southeast Asia.

Like Vietnam itself, both funds had weak performance over the past three years, but both have been on a tear since late fall.  VNM increased 36% over the past year and 42% in the past three months.  VCVOF is up 39% over the past year and 25% since December 1.