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The unprecedented decision by the United Kingdom (U.K.) to withdraw from the European Union (E.U.) slammed Vietnamese stock market last Friday, virtually wiping out $1.15 billion in market value.
Vietnam’s benchmark VN Index dropped 11.5 points or 1.85 percent to 620.77, mainly dragged by bank stocks. The decline on Friday was the largest since the beginning of this year.
Alongside volatilities on the stock market was a rush to safe haven investments such as gold. Gold prices hit a 10-month high at VND35.2 million ($1,570) – VND35.9 million ($1,601) per tael. One tael is equivalent to 37.5 grams.
Those spillover effects, experts said, were mainly caused by psychological factors. And it seems safe to say that at the moment no one really knows what the impact of Brexit will be.
“We have carried out preliminary analysis of the impacts that Brexit is going to have on the world and Vietnam. We are positive that Brexit is yet to have any considerable impact on Vietnam,” said Minister of Planning and Investment Nguyen Chi Dung at a seminar on investment policies on Tuesday.
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Investors sit watching share prices at an Asia Commercial Bank's securities trading floor in Hanoi, Vietnam. Photo by AFP/Hoang Dinh Nam. |
Brexit makes Vietnamese exporters sweat
Official statistics released by the Ministry of Industry and Trade show that Vietnam’s exports to the U.K. are currently estimated at roughly 2.5 percent of the Southeast Asian country’s total export value, reaching $4.65 billion last year.
Vietnam’s key exports to the U.K. include seafood, textiles and garments, footwear, furniture and other wooden products, and mobile phones.
Even though Vietnam’s exports to the U.K. have grown steadily at an annual average rate of 22.5 percent over the past five years, the U.K. still remains a relatively minor trading partner with Vietnam.
Experts said that Vietnam’s exports may be harmed as Brexit hits currency moves, battering the British pound.
“With a plunging pound, we should expect that the U.K. will become a less attractive market for Vietnamese exporters,” said leading financial firm Saigon Securities Inc. in a report on Brexit’s potential impacts on Vietnam.
The Vietnamese dong/U.S. dollar exchange rate has greatly fluctuated in the past few days.
“Brexit has created certain impacts on the foreign exchange market and the stock market. The dong has slightly declined against the U.S. dollar over the past few days due mainly to psychological factors after Britain voted to leave the E.U., however, [the decline] is still within the allowed trading band,” said Minister Nguyen Chi Dung at a government cabinet meeting yesterday.
However, economists fear a domino effect as a plunging pound would affect the yuan.
“Vietnam relies quite heavily on neighboring China. If the yuan is going to devaluate, the Vietnamese dong will hardly hold up. If it comes to that, market regulators will have to calculate the depreciation of the dong as a move to keep Vietnamese exports competitive [in the international market],” economist Nguyen Tri Hieu said in an exclusive interview with VnExpress.
Deputy Foreign Minister Dang Dinh Quy considered the possibility that a plunging pound will put huge pressure on the Chinese yuan. If China devaluates its currency, the Vietnamese dong will follow suit.
More importantly, these currency moves could place a heavy burden on Vietnam’s public debt. In April, the World Bank forecast Vietnam’s public debt will increase from 63.8 percent of its gross domestic product in 2015 to 64.4 percent in 2017 and 64.7 percent in 2018.
Adding up to the above-mentioned hindrances, Vietnam’s exports to the U.K. are likely to face technical hurdles, said Dang Hoang Hai, head of the European Market Department under the Ministry of Industry and Trade.
Hai said shipments from Vietnam to the U.K. are normally transited through the Netherlands, Belgium or Germany. After Brexit, Vietnamese exports will have to go through customs clearance, food hygiene and quarantine procedures twice before entering the British market.
More technical hurdles will cost Vietnamese exporters time and money, he added.
Vietnamese manufacturing could be onto a winner after Brexit
Concerns have been raised about foreign direct investment inflows into Vietnam as a weaker British pound could have negative impacts on the U.K.’s economic growth.
“Brexit will not have a great impact on foreign investment inflows into Vietnam, and the negative impact on U.K.’s growth will not translate into British investment in Vietnam," said Dang Duc Anh from the National Socio-Economic Forecast and Information Center, under the Vietnamese Ministry of Planning and Investment.
British investors currently have more than 200 projects worth a total of $4.4 billion in Vietnam, mainly in the real estate and manufacturing sectors.
Last year, the U.K.’s economy expanded at 2.2 percent, and its directed investments in Vietnam hit $1.2 billion.
Nguyen Bich Lam, Head of the General Statistics Office (GSO), told a press conference on Tuesday that GSO would take a good look at British investment projects in Vietnam.
The statistics office will assess possible changes in investment policies following Brexit and review relevant import and export taxes, he added.
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Labourers work at a garment factory in Bac Giang province, near Hanoi October 21, 2015. Photo by Reuters/ Nguyen Huy Kham. |
As most countries in Southeast Asia have made little progress in their ongoing trade talks with the E.U., Vietnam’s manufacturing sector could be a big winner after Brexit.
Dezan Shira & Associates, a Hong Kong-based consulting firm, believes the political chaos of Brexit will give Vietnam a key advantage as an attractive manufacturing location, since it already has a pending free trade agreement with the European Union.
Vietnam is the second country in the Association of Southeast Asian Nations (ASEAN) after Singapore that the E.U. has concluded a free trade pact with.
Vietnam accounted for 19.1 percent of the 201.4 billion euros (nearly $230 billion) in total trade between the E.U. and ASEAN members last year. That figure is up from 15.8 percent in 2014, global news provider Bloomberg cited data from the E.U. delegation in Singapore as saying.
“Given its unique position in low cost manufacturing, Vietnam will likely be more competitive than ever among European consumers,” the firm said.
Free trade pacts post Brexit
Concerning the European Union – Vietnam Free Trade Agreement (EVFTA), senior banking expert Can Van Luc said it is likely to slow down as the E.U. and Vietnam will have to review agreement terms and make necessary changes should the U.K. leave the trade pact.
Vietnam may negotiate a free trade agreement with the U.K. alone, said Luc.
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"The trade and investment relationship between Vietnam and the U.K. is a key pillar of our bilateral strategic partnership," said Lesley Craig, British Chargé d’Affaires in Hanoi. |
“The U.K. will continue to be engaged in Southeast Asia, the most dynamic region in the global economy. Vietnam matters to the U.K. We want to keep growing our bilateral relationship including through trade and investment,” British Chargé d’Affaires in Hanoi Lesley Craig told VnExpress International in an email.
“There will be no immediate changes to the ways we do business. The process over the next couples of years to work out the U.K.’s new relationship with the E.U. will help us understand what the changes means across a spectrum of areas, including free trade agreements,” the British official said.
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