Fitch Ratings has downgraded Vietnam’s long-term foreign and local currency ratings to BB-minus on Rating Watch Negative (RWN) as a result of the weakening confidence in the dong and a lack of transparency for key economic data.
“This reflects the deterioration in domestic confidence in the local currency and a lack of transparency regarding international reserves and the balance of payments at a time of weakening external finances,” Fitch Ratings said in a press release on March 12, 2010.
The New York-headquartered global rating agency has also placed the Southeast Asian country’s short-term foreign currency Issuer Default Rating (IDR) of B and Country Ceiling of BB- on watch negative.
Wide current account deficits, currency and deposit outflows and abnormally large errors and omissions in the balance of payments (BOP) accounts have weighed down on the country’s overall reserves, it noted.
Fitch forecast that Vietnam’s forex reserves may drop to 2.6 months of imports and 1.6 months of current external payments in 2010, which will be the lowest level since 1994 and weakest among BB-rated peers.
Unidentified outflows are also adding pressure on the balance of payments.
Failure of nine primary auctions by the State Treasury since Nov 2009 has signaled weakening public confidence in dong-denominated assets and rising dollar liquidity constraints within the domestic financial system due to strong greenback demand.
“Without a strong policy tightening backed by significant BOP support, confidence in the VND is unlikely to be restored,” Fitch said.
Despite Fitch’s move local and foreign traders continued seeking bargains, sending the VN-Index benchmark to rise 1.3% today to 531.51 on 55.970 million valued at VND2.555 trillion after the government urged Wednesday state firms to boost key projects.
Vietnam’s shares are considerably cheap compared to stocks in regional markets as the P/E of shares are 12X this year compared to 16.1 in Malaysia, 15.1 in Singapore, 13.8 in Indonesia, 13.1 in the Philippines, stock analysts said. (Fitch Ratings Press Release)
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