The current global economic crisis has hit international stock markets and economies hard. Global stock market sentiment has not been so bad since 1970s during the global oil shock and the Vietnam war. But as the chinese saying goes. In every crisis, there is an opportunity. So where is the opportunity in the world right now?
We will be hard pressed to find opportunities in US and Europe, the source of the present crisis. Although capital markets and property markets are well developed in these countries, the banking system is in a bind right now and confidence in the banking system will take time to recover. Indeed, countries which had previously done well (e.g. Iceland) have nationalised the banking system and huge banks in US and Europe have been nationalised. (so much for capitalism huh?) Even if the crisis blows over, as socialist countries have known, nationalising large institutions have a way of making them more risk adverse and less likely to take part in the next wave of opportunity.
Much has been said about the growth of Asia, especially countries like China, Hong Kong, Japan, Korea and Singapore. However, China’s problems like an overheating economy are already well known before the crisis occurs and while likely do to better than Europe and US, will be hit in some way by the US and Europe, its main export markets. Same for Japan, indeed, several financial instutions have already gone belly up in Japan. It is also well known that these 2 countries have bought lots of commercial government paper of the failed financial institutions and the impact on their domestic banks is still currently unknown. The same could probably be said of Korea as well.
Hong Kong and Singapore would probably go into a recession soon as well, as these are open and export orientated economies and will be vulnerable in this sense.
Middle East countries, due to their dependence on oil prices, will find it difficult to weather the crisis as well.
However, I am still bullish on the South American and South East Asian countries. These various economies have gone through severe economic crisis in the mid 1990s (1994 currency crisis and 1997 Asian crisis) and now they have relatively prudent economic policies and likely to do best.
However, in South East Asia, it is not so simple. Countries in Malaysia and Thailand, while economically strong, have been suffering from politically instability and in the case of Thailand, civil unrest. I would expect these countries to be too distracted to take advantage of the opportunities that would arise from this economic crisis.
That leaves Vietnam. Vietnam currently has a relatively prudent fiscal system, inspite of the economic crisis. Even at the depts of the crisis in Mar to May 2008, the country still managed to increase their foreign reserves from $20.1 billion in the beginning of the year to $20.7 billion in June 2008. According to recent figures in September 2008, the reserves increased again to a record $21.9 billion. The banking system, unlike those of developed economies, is sound and there is trust in the banking system. Indeed, with interest rates going down globally including Vietnam, depositors are scrambling to deposit their money in the banks to “lock in” the high interest rates before they come down. This is a far cry from other countries with depositors queuing up outside banks to withdraw their money. With the highest lending/deposit rates in the world, (nearly 6% for USD deposits and 17-18% for VND deposits) they have room to go down and the lower interest rates will further stimulate the economy.
While Vietnam is relatively exposed to world commodity prices, especially crude oil, they are net importers of oil and the drop in oil prices will be at worst neutral for them. Indeed the recent commodity price drop will impact Vietnam’s exports but I believe the recent drop in commodity prices may be temporary. With world central banks cutting interest rates, commodities may be well position for further uptrend. Of course, certain commodities like crude oil, copper which is sensitive to the economy will likely not do well due to decreased demand but this may not be true for agricultural commodities. Indeed, Vietnam may be positioned to take advantage of this as it is a major producer and exporter of agricultural commodities from fish to cashew nuts.
More importantly, Vietnam’s political system is relatively stable compared to its neighbouring countries like Thailand and even Malaysia. This would provide the basis for sound returns in the future.