Domestic interest rates are beginning to cool somewhat, Le Toan

As per the World Gold Council (WGC), in Vietnam, consumer demand for gold in Q4/2022 increased 58 per cent on-year to 13.5 tonnes, from 8.5 tonnes in Q4/2021. The rise was supported by a 48 per cent on-year increase in bar and coin demand over the same time frame from 6.1 tonnes to nine tonnes, and an 80 per cent on-year increase in jewellery demand from 2.5 tonnes to 4.5 tonnes.

“Vietnam saw the greatest increase in annual gold demand among the ASEAN markets in 2022, with a 37 per cent rise compared to 2021. It also led in annual jewellery demand with a 51 per cent rise compared to 2021, taking it to a 14-year high of 18 tonnes,” said Andrew Naylor, the WGC’s CEO for Asia-Pacific (excluding China).

“Several factors had an impact, including a slight decline in local gold prices in the fourth quarter, rising income levels as salary cuts were restored, and strengthening consumer confidence on the back of robust GDP growth.”

Globally, annual central bank gold demand more than doubled to 1,136 tonnes in 2022, up from 450 tonnes the year before and to a new 55-year record high. Purchases in the last quarter of 2022 alone reached 417 tonnes, bringing the total for the second half of 2022 to more than 800 tonnes.

Louise Street, senior markets analyst at the WGC, said, “Economic forecasts are pointing to a challenging environment and a likely global recession, which could lead to a role reversal in gold investment trends. If inflation comes down, this could be a headwind for gold bar and coin investment. Conversely, continued weakening of the US dollar and the moderating pace of interest rate hikes could have positive implications for gold-backed exchange-traded fund demand.”

Regarding the markets generally, analysts at KB Securities Vietnam believe there are several main drivers in Vietnam in 2023, including China’s production and business activities returning to normal in Q2, which should benefit Vietnam’s economy but not put too much pressure on global inflation.

Secondly, the US Federal Reserve may only have two more 25 basis point rate-hikes in the first quarter of 2023 and start lowering interest rates in Q4 when the US economy falls into a slight recession. It is also expected that money supply growth will be close to pre-pandemic levels, and domestic interest rates are starting to cool despite being high.

“Additionally, the corporate bond market is likely to face many difficulties in 2023. Bond defaults may occur, but the severity and scale will not be too large, as the interest rate level should cool down from the high base by the end of 2022. The real estate market is subdued but will not collapse systematically, while more supportive actions from the Vietnamese government can be expected,” KB Securities wrote.

The brokerage also assessed that this year’s second quarter will see concerns about economic recession weigh on the global stock market as the business activities of enterprises show more obvious signs of weakening.

In addition, the pressure of corporate bond maturity is high, leading to an increase in market risks, and the VNIndex is facing the risk of falling again. In the latter half of 2023, the market’s attention will focus on the possibility of policy easing of major central banks and the level of recession in the US and EU economies.

During the base case scenario, a mild recession would be enough for central banks to change their policies while not causing too much damage to the global economy. Vietnam’s stock market could recover given the central banks’ easing policy and stable domestic macro conditions.

In the negative case, when the above four factors are not favourable, the VNIndex could drop to 880 points by the end of 2023, KB Securities said.

Meanwhile, Dinh Quang Hinh, senior analyst at VNDIRECT Securities, said that there are a few signs pointing to the next down cycle in the domestic property market, including developers having limited refinance opportunity due to tighter regulations on corporate bond issuance and credit exposure; rising mortgage rates dragging on housing demand; and a drop in supply as project approval processes are delayed while waiting on an amendment to the land law.

“However, this down cycle is likely different from the last trough in 2011-2013. We see listed property developers’ financial health, currently in a better shape than the last down cycle. Thus, we expect less damage and shorter time to ride out any falls. We expect the on-schedule land law to tackle the bottlenecks in the approval of new residential projects, leading housing supply to recover from 2024-2025,” he said.

Hinh also predicted that pressure on interest rates and currency would ease considerably in the latter half of 2023.

“In our view, a combination of improving FX reserves, together with the Fed’s less hawkish stance sometime in mid-2023, will mark an end to the sharp VND drop against USD,” Hinh said. “We expect Vietnam’s FX reserve to recover to $102 billion at the end of 2023 from an expected $90 billion in 2022.”

This will increase probability of the global tightening liquidity backstop to provide headroom for the State Bank of Vietnam to keep rates unchanged from now on, Hinh explained, while deposit rates will stay flat in the first quarter of 2023 and gradually cool down from the third quarter onward.