Vietnam Currency Discussion Board

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Investing: Vietnam's debt market is drawing global funds
By Wes Goodman Bloomberg NewsPublished: March 5, 2007

SINGAPORE: Vietnam, one of the best performing debt markets in Asia this year, is attracting global bond funds anticipating faster economic growth and higher credit ratings.

Fortis Investments, part of Belgium's biggest financial-services company, is adding to its holdings of bonds denominated in Vietnam's currency, the dong. Oppenheim, part of the largest privately owned bank in Europe, plans to buy debt when Vietnam sells dollar bonds for a second time.

Investors have been encouraged by the government's forecast of a sixth straight year of economic growth in excess of 7 percent and its acceptance this year into the World Trade Organization. Vietnam is attracting so much money that it needs to curb "excessive exuberance" in its bond and stock markets, analysts at Credit Suisse Group said in a recent report.

"We expect a rating upgrade in the second half of this year," said Carmen Daub, who oversees debt at Oppenheim in Cologne. "Vietnam will profit from China and growth in the region."

The extra yield that investors demand to own Vietnam's 6.875 percent dollar bonds due in 2016 compared with similar-maturity U.S. Treasury securities has narrowed to 1.32 percentage points from 2.56 when the government sold them in October 2005. The spread widened about 0.17 percentage point last week as emerging markets fell from China to Brazil. Investors said they were sticking to forecasts for gains in the nation's debt.

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The dollar-denominated bonds returned 9.6 percent in the past year, according to data compiled by J.P. Morgan Chase. The yield on Vietnam's 10- year local bonds has fallen 0.45 percentage point this year to 8.35 percent. Only Thailand had a bigger drop in yields among Asia's 11 most-active markets.

Gains in dong-denominated debt have been helped by a 0.25 percent rally in the currency in December, the biggest monthly increase in more than 11 years.

The yield premium on the dollar bonds compared with U.S. Treasury securities may narrow 0.20 percentage point this year, said Didier Lambert, who oversees emerging-market bonds for Fortis in London. Assuming Treasury yields hold unchanged, that would translate into a gain of 6.2 percent.

Vietnam's dollar bonds now yield about 0.25 percentage point less than similarly rated bonds from Indonesia; 0.87 point less than Pakistan's bonds; and 0.91 point less than Turkey's. The lower yield suggests investors consider Vietnam's bonds less risky.

Vietnam reported a surplus in its current-account, the broadest measure of trade, in 2005 for the first time in four years, according to the International Monetary Fund.

Government officials said they were optimistic that the country would win a higher rating as trade expands. Standard & Poor's in September raised Vietnam's long-term foreign currency debt rating by one step to BB, two rungs below investment grade.

Vietnam's entry into the WTO in January followed a year in which foreign-investment pledges rose 49 percent to $10.2 billion and currency reserves swelled to $11.5 billion. Vietnam's benchmark stock index is up 52 percent so far in 2007, the most in the world.

"We are hopeful that we will receive an upgrade this year," said Nguyen Thanh Do, head of external financing at the Ministry of Finance.

The government had not set the size for its next dollar bond sale, he said. Vietnam may sell as much as $1 billion this month, The Vietnam Investment Review reported last month without citing sources.

Prime Minister Nguyen Tan Dung oversaw 8.2 percent growth in 2006 as Vietnam won pledges from companies including Intel, the world's biggest semiconductor maker, and Posco, the South Korean steel maker, to build factories. The government is predicting the economy will grow 8.5 percent this year.

J.P. Morgan Chase and Australia & New Zealand Banking Group published reports last month saying Vietnam might seek to curb the amount of money that overseas investors funnel into the country to ease pressure on its currency to appreciate.

Thailand tried to limit gains in the baht by announcing in December that it would fine any investor who tried to withdraw stock or bond assets less than a year after buying them. It exempted stocks two days later following a market plunge. It plans to lift the remaining controls on March 15.

The Vietnamese government would probably stop short of imposing similar penalties that prompted funds to boycott Thai debt in December, said Lambert, the Fortis executive.

"They are not forced to follow the same route as Thailand," he said. "They may impose some controls."

http://www.iht.com/articles/2007/03/04/bloomberg/bxinvest.php