Vietnam – Tiger and Dragon

Vietnam – Tiger and Dragon
Tue, 20 Feb 2007 08:41:46 GMT
by Oliver Stönner-Venkatarama

* The valuation of the stock market appears increasingly stretched, but the longer term economic trend is promising with the WTO accession being the catalyst for further reforms.

* Both the president and the prime minister aim to advance the economy’s global integration and to intensify the fight against corruption.

* Foreign corporates and banks are quite active in expanding their business to participate in Vietnam’s growth story.

* Investors expect Vietnam to follow China’s development path characterised by liberal economic settings and a stringent, one-party political leadership.

* As in China, continuously strong economic growth may prove as a stabiliser for the political environment.

* WTO accession forces local companies and banks to cope with stronger competition. This may lead to further privatisations in order to increase the entities’ efficiency.

* Lagging reforms could have a negative impact on the labour market, if state-owned enterprises would be forced to reduce the staff more rapidly. Vietnam probably tracks not only the positive trends of China’s transformation, but also its risks.

* On the positive side, WTO accession implies that Vietnamese exporters have easier access to other WTO markets, most importantly US and EU.

* Growing economic linkages with the US as well as China provides a favourable base for a longer term positive economic trend.

* Officials have started to point to the fact that the rise in the stock market seems overdone, mainly driven by capital flows. Taking the economic environment into consideration, we believe Vietnam will remain focused by investors also in the aftermath of a correction.
http://www.fxstreet.com/fundamental/market-view/a-weekly-spin-on-emerging-markets/2007-02-20.html