Designation of Vietnam as Currency Manipulator, Short-term Adjustment Expected in VN Index

Vietnam Stock Market Centered on Individual Investors,
Market Shock Unlikely to Prolong

"More Attention Needed on Reports from Biden Administration"

[Asia Economy Reporter Minji Lee] There are opinions that the Vietnam VN Index may undergo short-term adjustments due to the designation of currency manipulator by the U.S. Department of the Treasury. However, since the report came from the Trump administration, more attention should be paid to the contents of the currency report after the Biden administration takes office next year.

According to the financial investment industry on the 20th, after Vietnam was designated as a currency manipulator along with Switzerland in the U.S. Department of the Treasury's currency report on the 16th, the VN Index closed at 1,051.8 points on the 17th, down 1.4% compared to the previous day. So-yeon Lee, a researcher at Korea Investment & Securities, said, “In the case of the Vietnamese stock market, which had continued its bullish trend following Biden's election as U.S. president and the visible development of the COVID-19 vaccine, the shock of being designated a currency manipulator will serve as a justification to relieve accumulated fatigue.” She added, “However, since the weight of supply and demand lies with Vietnamese individual investors who are less sensitive to external issues than foreign investors, the market shock is unlikely to be prolonged.”

Vietnam was classified as a currency monitoring country last year after comprehensive changes to major trading partners and current account surplus requirements. In this currency report, the scale of foreign exchange market intervention was evaluated at 5.1% of GDP, exceeding the standard requirement (2% of GDP), leading to its addition to the list of currency manipulators. Since the enactment of the Trade Facilitation and Trade Enforcement Act in 2015, China (in 2019) was the only country designated as a currency manipulator, but China was removed from the manipulator list before signing the trade agreement this year.

Vietnam is expected to rectify issues such as current account and foreign exchange market intervention after bilateral consultations with the U.S. If the consultations are not implemented, sanctions such as prohibition of financial support to U.S. companies investing in Vietnam, banning Vietnamese companies from entering the U.S. procurement market, exchange rate pressure through the IMF, and trade agreement pressures will be imposed. For now, since the Vietnamese government will find it difficult to reduce the scale of trade and current account surpluses with the U.S. in the short term, it is expected to minimize foreign exchange market intervention. Accordingly, the pace of the dong's appreciation is expected to accelerate.

Researcher Lee explained, “Behind the U.S. sanctions is a warning against Chinese companies relocating to Vietnam,” adding, “There are many cases where Vietnam is used as a detour route for exports to the U.S. due to geographical accessibility, so there will be strengthened crackdowns on origin forgery and increased usage rates of Vietnamese-made materials by export manufacturers.”

However, the important point is the currency report that will come from the Biden administration. From next year, when the Biden administration takes office, responses to major trading countries are likely to change significantly and differ from the current Trump administration. Researcher Lee said, “While the intention to check China is the same as President Trump’s, Biden emphasizes solidarity with neighboring countries methodologically,” adding, “Cooperation with ASEAN countries such as Vietnam is essential to check China, and since there are no substantial measures, attention should be paid to the currency report that will come from the administration.”

This content was produced with the assistance of AI translation services.