Brexit’s immediate effect on Vietnam
First and foremost, Brexit might actually affect the potential trade result of the EU-Vietnam FTA (EVFTA) which was signed on December 2015 (but is yet to be ratified by the EU Parliament).
As a result, it is possible for this FTA to be split in two: one with all the terms and conditions between Vietnam and EU, the other between Vietnam and Britain.
Although re-negotiation between Vietnam and EU (now with Britain out of the picture) is not necessary, the ratification of EVFTA will almost certainly take more time and this complication definitely hurts Vietnam’s economy.
According to economist Nguyen Xuan Thanh, a better scenario for Vietnam is a possibility of Britain being able to join a three-way FTA with Vietnam and EU.
What should investors keep in mind
Regardless of many interpretations, global exchange rates have fluctuated wildly when news of Brexit came in. In general, US dollars became much stronger with regards to other currencies after investors forecasted that the Euro and British pound would weaken. With that notion in mind, there is more pressure to maintain an acceptable USD/VND exchange rate.
The pressure on the dong will increase as time passes but there is a low chance of future “market shock”. It is also important to remember that the dong has lost 0,9% in value to US dollar.
Both Hanoi and Ho Chi Minh stock indexes are showing bullish trend. Potential risks have increased but all those factors are still not enough to negate more growth. Brexit is truly a very harsh trial to test market’s resilience in the next few trading days.
Maybank Kim Eng advises investors to not be swayed by early hits but to remain vigilant and cut losses when possible. Investors should stay away from foreign securities such as exchange-traded funds, P-bonds and over-performing securities.
Instead, they should stick with stocks from “healthy” industries such as consumer goods, pharmaceuticals, stocks that benefit from domestic investment trend such as FDI, construction, logistics, and stocks from companies with low input costs.