With an uncertain outcome, elections seasons always put the markets on edge, and it is no different for Vietnam’s selection of new Central Committee members. However, the country probably has a lot of work on its hands before the economy, along with related exchange traded fund (ETF), can stabilize.
Vietnam will select its new Communist Party leaders this week, reports Nga Pham for BBC. While no sweeping changes are likely, the party could retrench itself, intensifying domestic problems and also impeding the country’s integration with the rest of the world.
The nationalized planned economy has created double-digit inflation rates, huge budget deficits and failures in state-run companies. However, the party still intends to move forward and “develop a market economy with socialist orientation… where the state sector plays a decisive role.”
While the Vietnamese economy expanded around 6.5% in 2010, the economy still suffers from high inflation, a growing deficit, a depreciating currency and diminishing foreign exchange reserves, according to VOA News.
Tom Byrne is senior vice president of ratings agency Moodys Investors Service in Singapore remarks that the dong is facing increasingly downward pressure, and the risk of a debt repayment crisis increases as reserves drop further. Byrne also notes that the fast growth favored by the government emphasizes short-term development and not sustainability. Moody’s and other ratings agencies have already downgraded Vietnam’s credit rating.
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A change of scenery might be all Vietnam needs to resume the growth it experienced in an otherwise choppy 2010.
- Market Vectors Vietnam ETF (NYSEARCA:VNM)
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Disclosure: No position