HO CHI MINH CITY, June 28 (Xinhua) — The British vote to withdraw from the European Union (Brexit) will have a negative impact on Vietnam's economy, especially regarding trade, investment, interest rate and the equity market.
On the morning of June 24, after the Brexit vote results were announced, the prices of the U.S. dollar and gold in the Vietnamese market surged, with gold prices changing 65 times, while those of securities on the local bourse plummeting, wiping out 50 trillion Vietnamese dong (more than 2.2 billion U.S. dollars).
However, such short-term effects were mainly caused by psychological factors, said Vietnamese experts. According to them, Brexit will not heavily impact trade and investment between Britain and Vietnam, but it will have a considerable effect on Vietnam's capital flow and foreign exchange rates.
On Monday, Saigon Securities Inc. (SSI), a leading financial corporation in the Vietnamese market, published a report which touches upon Brexit's potential impact on Britain-Vietnam trade, investment, currency, interest rate and equity market.
Britain is one of Vietnam's most important trading partners, with their bilateral trade rising 25 percent to 5.4 billion U.S. dollars last year, and with Vietnam enjoying a sizable trade surplus with the European country. "With a plunging pound, the general rule is that Britain should be a less attractive market for Vietnamese exporters if they cannot hedge their forex position, " stated SSI.
However, trade will not be dealt such a strong blow from Brexit, because Vietnam's key exports to Britain include mobile phones and their components, garments, textiles, footwear and seafood. They belong to a group of relatively basic consumer goods which are little affected by economic cycles.
Meanwhile, with policies of luring foreign direct investment (FDI) and joining the Trans-Pacific Partnership (TPP), Vietnam is poised to become one of the world's dominant electronics and garment-producing hubs. "This will ensure continued growth of Vietnam's exports to Britain," assumed SSI.
"Brexit will have a minor impact on Vietnam's investment, and British investment in Vietnam is not related to the Britain's economic growth," Dang Duc Anh from the National Socio-Economic Forecast and Information Center, under the Vietnamese Ministry of Planning and Investment, told Xinhua.
Britain currently has 222 valid projects totaling 4.4 billion U. S. dollars in Vietnam, mainly in the real estate and processing sectors, ranking 15th out of 105 countries and regions receiving FDI in Vietnam. In 2015, when the British economy grew only 2.2 percent, its fresh FDI in Vietnam reached 1.2 billion U.S. dollars. In 2014, when its economic growth stood at 2.9 percent, its fresh investment in Vietnam was a meagerly 24.8 million U.S. dollars.
Duc Anh's statement was echoed by SSI, which said FDI in Vietnam depends more on the Vietnamese side than on the British side. Brexit's impact will not be as important as Vietnamese factors such as investment opportunities and administrative procedure reforms, said the financial corporation.
However, many local and foreign experts assume that Brexit will have a noticeable impact on Vietnam's currency, interest rate and stock market. International investors will be inclined to shift from high-risk assets like stocks to assets with lower risks such as gold, bonds and the Japanese yen, the experts said.
In the week the Brexit referendum took place, international investors withdrew nearly 1 billion U.S. dollars from emerging markets in Asia. After Britain leaves the European Union (EU), some other members may want to follow suit, therefore, the trend of changing indirect investment channels is likely to continue, predicted SSI.
Meanwhile, the strong appreciation of the Japanese yen will cause a headache for Vietnam, because it will place increased pressure on the country's public debt, a large part of which is held in Japanese yen. In April, the World Bank forecast Vietnam's public debt will increase from 63.8 percent of the nation's GDP in 2015, to 64.4 percent of GDP in 2017 and 64.7 percent of GDP in 2018.
However, while having a negative impact on Vietnam's external debts and local firms with yen-dominated debts, the appreciation of the Japanese yen might benefit enterprises which export goods or services to Japan.