The Outlook for the Vietnamese Dong in 2018
A Southeast Asian country with nearly 95 million residents, and perhaps best-known for the Vietnam War, Vietnam is actually one of the biggest growth stories of the 21st century. That could make the Vietnamese Dong a preferred currency speculation in 2018 and beyond. As the country consolidates and continues its rapid growth, the currency should also strengthen going forward.
Despite its current status as an “exotic currency” the Vietnamese Dong is one of the currencies of this category with the greatest future potential. In recent years Vietnam has moved beyond its long-term pattern of political isolation, and integrating itself more into the global economy, including the United States.
In fact, a 2005 forecast by Goldman Sachs projected that Vietnam’s economy will be the 21st largest in the world by 2025. Shortly after, PricewaterhouseCoopers noted that Vietnam may be the fastest-growing of the world’s emerging economies by 2025. These projections indicate tremendous potential for the country, and its currency, the Vietnamese dong .
2018 may be the last opportunity to invest in the Vietnamese Dong while it is still very low in comparison with major world currencies, particularly the US Dollar. It may be the perfect addition to the speculative corner of an otherwise well balanced and diversified portfolio.
The Vietnamese Dong in 2017
The Vietnamese dong has been trading consistently in the range of 22,700 per US dollar for the past couple of years. It is displaying the type of currency consistency that could foretell strength in the future, particularly as the country’s economy continues to grow much more rapidly than the global economy.
It’s clear that Vietnam’s worst days are behind it. This is already reflected in the stability of the currency. As we’ll discuss going forward, prospects in Vietnam on virtually every front are improving rapidly. The country is going through a transition from an isolated agricultural economy, to an increasingly industrialized one that is becoming more of a force in the global economy with each passing year.
The Vietnam Economy for 2018
The Economist provides this assessment of the Vietnam economy for 2018:
“Vietnam’s real GDP growth surged to 6.8% in 2017—the highest growth rate seen in a decade. A healthy rebound in the second half of the year made up for a weaker than expected performance in January–June, with data from the General Statistics Office (GSO) showing real GDP growth accelerating to 7.7% year on year in the fourth quarter, from 7.5% in July–September. The substantial pick-up in the fourth quarter supports our view of solid growth prospects in 2018 and we forecast that the economy will expand by 6.5% this year, making it one of the fastest-growing economies in Asia. ”
In a separate update, The Economist noted that they expect growth to “stay relatively strong in 2018-2022”, and further that Vietnam remains an “investment hotspot” and that a breakdown of the one-party system remains highly unlikely.
Vietnam has a robust and rapidly growing manufacturing sector. Manufacturing has a strong export orientation, with the US being its largest export market, followed by China. The country’s agricultural sector is also a major contributor to exports. However, there is the caveat that farm production can be negatively impacted by severe seasonal weather.
Tourism is fast becoming a major industry in Vietnam. In 2017, nearly 13 million foreigners visited the country. That was a more than 29% increase over 2016. The government has a goal of increasing that number to 15 million in 2018.
Oil production is another growth industry in Vietnam. In 2016 the country had average production of more than 300,000 barrels per day. Estimated reserves are 4.4 billion barrels, giving Vietnam the 25th largest oil reserves in the world. Oil production fell somewhat in 2017, and is expected to remain stable in 2018.
Vietnam’s Geopolitical Environment
Unlike many countries that have exotic currencies, Vietnam is more stable on the geopolitical front. The major point of international contention is ownership of the Spratly Islands, which is a long running area of dispute between Vietnam and China. And while the two countries have experienced armed conflict in the distant past, it seems unlikely that such a situation will develop today.
Meanwhile, the country’s territorial waters and land frontiers are quiet and peaceful. The country faces no major external threats, nor the types of ethnic or regional strife that grips many developing countries.
As well, Vietnam is located thousands of miles from many of the world’s current geopolitical hotspots, like the Middle East and Korea. This geopolitical stability likely has much to do with the country steady social and economic progress. The absence of international conflict is freeing the country to concentrate its resources on improving its domestic circumstances.
And Vietnam is doing just that. The country is rapidly building its infrastructure, including transportation systems, water supply and sanitation, and of course its economy. The results are becoming increasingly evident. As well as being one of the fastest-growing economies in the world, Vietnam is making significant progress against poverty. It now boasts a lower rate of poverty than China, India and the Philippines.
And despite a long history as a primarily agricultural country, it’s now making a smooth transition into manufacturing and services. Information technology and high-tech industries are also a significant part of that growth. But despite its industrial growth, the country remains significant in agricultural production. Vietnam is the world’s largest producer of cashew nuts and black pepper. It is also the second largest exporter of both rice and coffee, two major global agricultural commodities.
The Vietnamese Political Situation
Officially titled the Socialist Republic of Vietnam, the country is one of only four in the world openly maintaining communism. China, Cuba and Laos are the other three. This has created a one-party system, in which the Communist Party of Vietnam remains the center of national political power.
While this form of government has largely fallen out of favor, the one-party system has provided an unusual level of political stability in the country. And despite the communist government, the country continues to integrate itself into the world economy. It is also wide open for both foreign investment and its growing tourist trade, that now brings in millions of international visitors.
Vietnam continues to maintain close political and economic cooperation with China. However, the two have had a long history of territorial disputes, that have resulted in armed confrontation. But despite its close relations with China, the country maintains a strong independent foreign policy. It is actively working to promote openness and diversification with different countries.
For example, Vietnam normalized relations with the United States in 1995, and has established diplomatic relations with 172 countries. It also holds memberships in 63 international organizations, including the United Nations and the World Trade Organization.
Relations between the US and Vietnam have normalized to the point that President Barack Obama lifted the arms embargo on sales of lethal weapons to Vietnam in 2016.
The Outlook for the Vietnamese Dong in 2018
A consistent problem with the Vietnamese dong in the past has been inflation that led to the currency being devalued. For example, the dong was devalued three times in 2010, with an annual inflation rate of nearly 12% for that year. However, inflation has been brought under control in recent years. It’s projected to average about 3% for 2018, and all the way through 2020. The lower rate of inflation will have a stabilizing effect on the currency, and increase its international status.
After decades of perpetual warfare and widespread poverty, the country is rapidly modernizing. It’s a fast developing country, well on its way to attaining first world levels of success. Prospects for its economy and its international relations should only improve going forward.
The effects of these improvements will ultimately be reflected in the Vietnamese dong. Both foreign trade and the rising tourist industry are creating increasing exchange with the global markets. Though the dong may never become one of the world’s dominant reserve currencies, it’s likely to attain status of a major regional currency.
The current stability of the dong makes 2018 an excellent year to take a position in the currency. Given that the prospects for the dong seem destined only to improve, as Vietnam’s international profile rises, it’s best to buy in while the activity is quiet. Once it begins rising in value, the ascent will be quick. The best time to buy in will have past. Our expectation is that 2018 will be lowest valuation going forward.
The dong is available at Treasury Vault in denominations of your choice. It’s an excellent currency to occupy a small sliver of your investment portfolio. Though it currently is a speculation, it’s one that can pay off handsomely and steadily in the coming years.