Vietnam: a star performer dimmed by inflation measures

"Vietnam's stockmarket, a star performer in 2006 and 2007, has collapsed this year, a casulty of the government's all-out war on inflation," says Nguyen Pham Muoi in The Australian.

With consumer prices up 21.4% year-on-year in April, the central bank raised interest rates by 3.25 percentage points last week in an effort to cool the economy, tough measures that mean that "the government's initial hopes for 9% growth this year may be dashed", says The Economist. The result is that while markets in the rest of the world have bounced back, "Vietnam is very much moving under its own factors", says John Shrimpton of investment boutique Dragon Capital on Bloomberg.com.

Moving' in that context means going down: "Vietnam is still making new lows," says David Fuller on Fullermoney.com and investors should not be mislead by a recent slowdown in the decline. A reduction in the maximum permitted trading band is probably responsible for this and for a collapse in trading volumes. "Regulators have delayed the adjustment process."

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The good news, however, is that "Vietnam's macroeconomic fundamentals are still sound", say Jonathan Pincus and Vu Thanh Tu Anh in the Far East Economic Review. "The country is not heavily indebted, export growth is still strong and the [central bank] has added substantially to foreign-exchange reserves over the past year."

The bad news: Vietnam's "fragmented" policy-making institutions are making it hard to tackle the inflation problem and "fundamental reforms are needed". The huge state conglomerates also need better regulation; this is "the central challenge facing the Vietnamese leadership for many years to come".

Investors expecting them to succeed could consider the Vietnam Opportunities Fund (Aim:VOF), the only managed fund with no minimum investment. Alternatively, Deutsche Bank have recently launched the first Vietnam tracker, the FTSE Vietnam Index ETF.