Experts see Vietnam's troubles as short term

PUBLISHED : Wednesday, 18 June, 2008, 12:00am
UPDATED : Wednesday, 18 June, 2008, 12:00am

Property consultants and investors remain upbeat about Vietnam's economic and property prospects despite the recent stock market slump and the retreat of property prices that followed, as well as warnings of an impending collapse in the exchange value of the currency.

Comparisons drawn by some analysts with the Asian financial crisis in 1997 were alarmist and overstated, they said, describing the present economic woes rather as a consequence of the 'growing pains' of an emerging market and predicting that the medium to long-term investment outlook would turn positive.

But despite the reassurances, some investors said they would not focus on the market due to its risky outlook and the negative sentiment that arose in the wake of a report from Morgan Stanley late last month that warned of an economic crash comparable to what was experienced by Thailand in 1997.

The release of the report coincided with announcements from ratings agencies Standard & Poor's and Fitch that they had lowered Vietnam's credit rating on fears of financial instability as the dong was under pressure and inflation was running at 25 per cent, its highest since 1992.

Faced with the economic challenges, the main stock market index has plunged about 55 per cent this year, and it has been reported that housing prices in some areas have dropped 50 per cent over last month. 'Against the backdrop of all this negative data, it is easy to assume that it is all doom and gloom,' said Tim Murphy, the managing director of IP Global, a property investor and industry consultant.

However, he said Vietnam's inflationary issues were mirrored in many other markets globally and seemed to be a direct result of the commodities boom.

Those taking an optimistic view noted that Vietnam has a large, dynamic and young population and attracted US$8 billion of foreign direct investment last year, compared with US$3.25 billion in 1997. At the latest count it had also attracted more than US$20 billion worth of foreign direct investment pledges.

'For these reasons we believe that the current woes Vietnam is facing will be short-lived,' Mr Murphy said.

A vote of confidence came also from Nicholas Brooke, the chairman of Professional Property Services Group.

'We strongly believe the current situation is a consequence of major growing pains stemming from exceptional economic growth combined with weak monetary policies, rather than a by-product of the international issues affecting much of the investment world,' Mr Brooke said.

'How long these growing pains will prevail will depend on the extent to which the government implements the right fiscal and monetary policies.'

However, he said the national leadership now appreciated the seriousness of the situation and he remained confident in Vietnam's medium to long-term investment prospects in Vietnam.

Mr Brooke believed Vietnam would witness some interesting opportunities next year.

'We regard the current situation as being somewhat similar to China in the mid-1990s - the result of very rapid growth, perhaps over-enthusiastic foreign direct investment - but steps have been taken to cool the situation and the market should stabilise next year.'

Thierry Gougy, a partner and the head of the Hanoi office at law firm DFDL Mekong, echoed these sentiments and said Vietnam was in a transition period where 'a correction was definitely needed as property prices have gone up too soon and too high'.

The correction would encourage buying from potential homebuyers who had postponed their plans because of fast-growing property prices, Mr Gougy said.

However, not everyone was as confident.

Simon Treacy, the chief executive of MGPA Asia Investments, said although the fund would not ignore Vietnam, it would not regard the country as an investment priority due to its higher investment risks compared with such economies as Australia, China and Japan.