Investors Shrug Off Vietnam Manipulator Status as Biden Eyed

(Bloomberg) -- Traders in Vietnamese assets aren’t likely to be ruffled by the U.S. Treasury’s move to designate the Asian nation a currency manipulator.

The Vietnamese dong traded little changed at 23,124 per dollar as of 10:56 a.m. in Hanoi on Thursday after the Trump administration’s final foreign-exchange policy report. The benchmark stock index pared its loss to 0.5% after falling more than 1% earlier.

While the designation can escalate trade tension, President-elect Joe Biden may join the Trans-Pacific Partnership, making it less likely that he will raise tariffs in Vietnam, said James Bannan, a fund manager at Coeli Asset Management, which oversees about $400 million of frontier-market investments.

“Vietnam and the U.S. have a pretty constructive relationship and I don’t expect there to be significant trade tensions going forward,” said Bannan, who is based in Malmo, Sweden. “But as Vietnam continues its prodigious export growth, it follows that it will need to be less protective domestically to avoid trade retaliation.”

Read: U.S. Designates Switzerland, Vietnam as Currency Manipulators

The Vietnamese dong gained 0.2% this year, underperforming Asian peers including the Chinese offshore yuan, which rose about 7% in the same period. The dong reached a record-low 23,637 per dollar in March.

The yield on Vietnam’s $1 billion Eurobonds maturing in 2024, meantime, fell 1.17 percentage points in the year to date.

Vietnam’s central bank reiterated on Thursday it does not use its exchange rates to create an unfair competitive advantage in international trade. Its recent purchase of foreign currencies “is to ensure the smooth operation of the foreign exchange market in the context of an abundant supply of foreign currencies,” the regulator said in a statement.

Other emerging-market nations from Thailand, Taiwan and India were added to the U.S. Treasury Department’s “monitoring list,” while Japan, Korea, Germany, Italy, Singapore and Malaysia remained in that group, along with China.

“The decision is also a warning signal to other developing economies that attempt to maintain their competitiveness by preventing their currencies from excessive appreciation will not be tolerated,” said Piotr Matys, a currency strategist at Rabobank in London.

Here’s what else investors are saying about the designation:

Brendan McKenna, a foreign-exchange strategist at Wells Fargo in New York:

• No surprise as Vietnam has been on watch as a manipulator for a while; probably won’t have a long-lasting impact
• “A lot of supply chains have moved from China to Vietnam, and China has been circumventing tariffs via Vietnam”
• “When a country is listed as a manipulator, trade policy is supposed to be discussed, so there could be some adjustments to Vietnam trade. But a Biden White House probably wouldn’t prioritize Vietnam trade policy.”

Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets in Hong Kong:

• The Treasury report will test President-elect Joe Biden’s priorities considering a majority in the list comprise former U.S. allies and those that the U.S. is trying to establish closer ties with
• “The labeling is ultimately a political choice,” Tan says, adding that China was named a currency manipulator in 2019 when it met only one of the three criteria defined in the relevant U.S. statute

Cristian Maggio, head of emerging markets strategy at TD Securities in London:

• Vietnam has fallen into the agency’s definitions for a currency manipulator for a while, “and has been for quite some time an ‘exposed’ country in this respect”
• A Biden-led White House “may be more reluctant to pursue friendly countries or those where there’s a political agenda of rapprochement”

Win Thin, the New York-based global head of currency strategy at Brown Brothers Harriman & Co.:

• “This report has become so politicized that I don’t think it really means much in terms of market implications”
• “This is a lame duck administration and it will be easy for the next one to reverse these designations if so desired”

Julian Rimmer, a trader at Investec Bank Plc in London:

• The announcement on Vietnam may not weigh on other emerging markets as the dollar weakens in 2021, which will support EM and commodities

Sergey Dergachev, a money manager at Union Investment Privatfonds GmbH in Frankfurt:

• “It is, on one hand, not great for being on the U.S. target list, but implications for Vietnamese debt should be very minimal”
• The debt load “is very small, and held in stable hands”

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