Not Putting All Eggs in One Basket

 

Gold remains a safe haven when the economy confronts problems. It is a highly profitable investment channel, though its price is quite high.

 

Gold prices are expected to reach all-time highs this year. Prestigious forecast organisations like Morgan Stanley and Bank of America - Merrill Lynch predicted that the bullion price will reach US$2,000 per ounce this year. The US-based Bank of America (BoA) estimated that the precious metal will top US$2,000 per ounce in 2013 and US$2,400 per ounce in 2014. The UK-based HSBC Holdings asserted that gold prices would average US$1,850 an ounce in 2013, close to the prediction of US$1,840 announced by Credit Suisse of Switzerland. Deutsche Bank of Germany anticipated that gold price would hit US$2,000 per ounce in 2013.

 

The expectation of all-time highs in gold prices in 2013 is based on loosened monetary policies adopted by central banks, eased risks related to the collapse of the eurozone, and support of physical gold demand. Speculators as well as people are psychologically prepared for new gold fevers.

 

Given the current context of pessimistic business outlook, gold advantages prevail. Strengthening price of the precious metal is relatively clear, but local investors also need take into account policy risks. Currently, the domestic gold price is still considerably higher than the world rate. If the State Bank of Vietnam (SBV) introduced policies to strongly intervene in the gold market in 2013 to make the price closer to the world rate, investors will suffer losses because of current price differences. Especially, the maturity of short-term gold deposit certificates is set on June 30, 2013.

 

2012 was a tough year for the stock market of Vietnam. Indices repeatedly plunged to new lows, securities brokerage companies collapsed, and investors left the market. This adversity was attributed to the economic downturn, financial crisis stemming from lax management of banks and excessively debt-dependent economy.

 

However, this development is quite normal in the stock market where there are always strong fluctuations, surprises and profitability feats. China previously had 2,000 securities brokerage companies but it now has only 107 brokerage houses. After eight months of restructuring, Taiwan reduced its securities companies from over 200 to 58. The development in Vietnam is not extraordinary.

 

In 2013, the stock market wins a vote for being a promising investment channel. Share prices are very low and regulators have submitted the stock market schemes to the Government, asking for quickly loosened monetary policy. GDP growth in 2013 is expected to be higher than 5.03 per cent in 2012. Business performances, especially of manufacturers, are likely to rebound in 2013 due to lowered interest rates and improved domestic consumption. The liquidity of the financial system also increases because of more abundant capital leverage and increased liquidity of the stock market. All these changes will be quickly translated into share prices.

 

According to securities companies, mid-cap and big-cap companies with stable performances and good dividend yields will benefit most from interest rate cuts, and recover faster and further than the overall market in 2013.

 

Commercial banks are experiencing a very tough time. Some have incurred losses and faced restructuring in 2013. However, Governor of the State Bank of Vietnam (SBV) pledged to ensure the system safety and protect depositors from risks. Hence, savings accounts are the safest investment channel with sure interests.

 

Nevertheless, interest rates tend to go down because the central bank slashes regulatory rates. Hence, depositors are unlikely to receive as high interest rates as two years ago when deposit rates were 17 - 18 per cent per annum, even 20 per cent. Deposit rates are now capped at 8 per cent by the central bank, but banks usually negotiate with depositors and offer higher rates than official quotations in case they need money.

 

However, the economy is still not free from the spectre of inflation. The recurrence of inflation may happen at any time. Inflation will weaken local currency and depositors will have their assets reduced despite interest earned.

 

The real estate market declined since 2008 and is currently stagnant. Inventories of 60 real estate companies listed on the Hochiminh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) are estimated at VND84,000 billion (US$4.2 billion), leaving them short of capital and sending them to the brink of bankruptcy.

 

However, a risk for one person may be an opportunity for others. Can Van Luc, senior expert at the Bank for Investment and Development of Vietnam (BIDV), said that real estate companies and the market have at least three opportunities. That is the chance for companies to restructure themselves and for the market itself. They need to deal with ineffective, trend-following projects.

 

Investors will have more opportunities this year than ever before, and will take over projects at lower values. Many new projects are seeking investors to transfer or join the venture. The market will surely recover in the future, perhaps in a few years, and this could be a rare opportunity to make a profit. This is also an opportunity for businesses to make more efficient investments, especially with access to bank loans after the Government and the State Bank of Vietnam recently introduced a series of measures to deal with difficulties weighing on the real estate market.

 

This is also a chance for homebuyers to take action, because they have more options and better support.