Vietnam market stabilizes on lower inflation, trade deficit data

Jun 23, 2008, 11:47 GMT

Hanoi - Vietnam's stock market had a rare good day Monday after preliminary figures released by the government showed inflation slowing and the trade deficit shrinking in June.

Vietnamese press reports Monday morning cited Deputy Minister of Planning and Investment Cao Viet Sinh saying inflation would come in at 2.2 per cent for the month of June, down from 3.9 per cent in May. Sinh said the country's trade deficit had declined from 8.3 billion dollars in the first quarter to 6.4 billion dollars in the second.

'This shows that the government's raft of measures to contain inflation has started to take effect,' Sinh told Deutsche Presse-Agentur dpa on Monday. 'The prices of food have eased and the prices of construction materials have as well.'

Investors and business analysts have been eagerly awaiting the June figures. Vietnam's rapidly rising inflation and trade deficit have threatened to derail the country's fast-growing economy, with analysts at Morgan Stanley, Deutsche Bank, and elsewhere warning in recent weeks that the country could face a currency crisis like that in Thailand in 1997.

The new figures appeared to reassure investors, as the Ho Chi Minh City stock exchange closed up 0.8 per cent to 368.95 on light volume. It was one of just five positive showings for the market since May 10.

'After the CPI and the adjusted trade deficit information came out, the confidence level of investors is much better than previous times,' said analyst Dinh Anh of Saigon Securities in Ho Chi Minh City.

There had been some confusion over the new statistics Monday morning, as the Vietnamese newspaper Lao Dong reported a trade deficit for the first half of 2008 of 16.9 billion dollars, rather than the 14.7 billion dollars Sinh cited. That report was picked up by foreign news agencies.

Sinh said the Lao Dong figures were wrong, and reflected estimates the MPI had made in May for the first six months, which did not include the new data for June. The Lao Dong reporter confirmed the figures used in her report were old.

Economist Jonathan Pincus of the UN Development Programme in Hanoi said it would be impossible to comment on the figures until the finalized June statistics are available, but that a drop in the trade deficit for the second quarter would not be surprising.

'It would have been physically impossible to keep up the deficit at the rate they were going' in the first quarter, Pincus said. He said a small number of major property developments had generated most of the influx of foreign direct investment in the first few months of the year, and that as those projects slowed, the trade deficit could decline.

Pincus cautioned that the volume of Vietnamese commodity exports, including rice, coffee and rubber, would have to rise, and that the government would need to continue to make budget cuts to fight inflation.

Sinh said Vietnam attracted 31.6 billion dollars in foreign direct investment in the first six months of the year, versus 8.4 billion dollars in the same period in 2007, demonstrating continuing confidence by foreign investors.

Economist Adam McCarty of Mekong Economics said the June figures indicated worries of rising trends in inflation and the trade deficit were probably misplaced.

'They can probably get out of their troubles,' McCarty said.