VNDIRECT RESEARCH
Our optimistic view for VND has turned more neutral for 2022 Our optimistic view for VND has turned more neutral for next year due to the following reasons: (1) US$ may regain the upper hand in the rest of 2021 as the Federal Reserve (FED) has begun to reduce the size of bond purchasing programme (QE tapering) since Nov 2021, (2) inflation pressure in Vietnam could pick up since late-2021. Regarding to policy rate, FED announced to kept FED fund target to near zero. According to CME Group survey, market expects that FED can raise policy rate by 50-75bp in 2022, starting from Jun 2022. Meanwhile, ECB and BOJ are likely to keep their policy interest rates at low levels in 2022 to finance accommodative fiscal policy and support the economic recovery. However, we see that the fundamental factors to keep Vietnam Dong stable in recent years still remain, including current account surplus and higher foreign exchange reserves (FX reserves). We expect current account surplus to widen to 1.9% GDP in 2022F from an expected deficit of 0.4% GDP in 2021F. We also expect Vietnam’s FX reserves to reach US$122.2bn at the end of 2022 (equivalent to 4.1 months of import) from a current level of US$105bn. As a result, we see the US$/VND stable at 22,600-23,100 in 2022F and the Vietnamese dong may move in a relatively narrow range vs. the US$. Figure 41: Most of ASEAN currencies depreciated vs. the US$ in 2021
*data as of 18 Nov 2021
Figure 42: Vietnam's current account and FX reserves
Source: BLOOMBERG, VNDIRECT RESEARCH
Source: SBV, VNDIRECT RESEARCH
Key macro risks into 2022 #1. Cautious but not overly concerned on the inflation risk We see inflation to pick up in 2022, as following reasons: • •
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The recovery of domestic consumption and a tighter pork supply in the 2H22 could lead to stronger increase in the food & foodstuff price index. Energy prices are expected to maintain at a high level in 2022 with Brent crude oil price could average at US80$/barrel in 2022F (+14.3% yoy). We also expect a strong recovery in mobility in 2022 as the government eases social distancing measures and resumes international flights from 1Q22. These are bullish catalyst for the transportation price index. It can be clearly seen that the prices of many inputs for the production of goods have increased sharply in 10M21, such as the prices of gasoline, chemicals, fertilizers, coal, iron and steel...These factors will be reflected in the prices of consumer goods in 2022 when consumer demand recovers.
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