Vietnam’s markets likely touched by US presidency

11:16 | 01/12/2020
The outcome of the US presidential race is unarguably one of the most important factors influencing global markets across all sectors. Y Nguyen - head of Macro Economics, Hieu Tran - investment strategist, and Toan Dao - industry analyst at KIS Securities, dive into the nuts and bolts of Joe Biden’s impacts to Vietnam’s financial landscape.
1520 p24 vietnams markets likely touched by us presidency
In this file photo taken on November 24, 2020 US President-elect Joe Biden speaks during a cabinet announcement event in Wilmington, Delaware. President-elect Joe Biden's victory in Arizona was finalized November 30, 2020, further cementing his win even as Donald Trump continues to make baseless claims of vote fraud.(CHANDAN KHANNA / AFP)

Joe Biden’s ambitious plan may boost long-term economic growth, followed by an expansion in trade activities.

As an essential trading partner, we expect the Unỉted States’ stimulus to also benefit Vietnam in the long-run. Besides this, to modernise the crumbling transportation system, Biden proposes concentrating on infrastructure investment as a vital source for long-term economic growth in the US. This promising strategy will surge demand for construction metals such as steel, iron, aluminium, and copper and consequently favour domestic and external suppliers, including Vietnam.

As an essential policy in Biden’s plan for revitalising domestic manufacturing, the “Made in America” predicate will provide more investment in federal procurement to enhance domestic producers’ competitiveness relative to China and other countries with similar product lines, which probably lifts domestic firms’ share and position and hinders exporters from approaching the US.

Furthermore, as a part of the Green New Deal, the president-elect commits to fully integrate climate change into the US foreign policy, as well as its trade approach. As the US takes steps to make domestic polluters bear the full cost of their carbon pollution, the Biden administration will impose carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations.

Biden will also introduce new conditions related to climate change commitments into future trade agreements – a policy which may change Vietnam’s export value and structure to the US.

Vietnamese exports to the US will likely be affected by Biden’s approach to the trade tensions with China. Described as the winner of the US-China trade war, the shift in approach and attitude of the Biden administration will reverse the competitiveness of Vietnamese goods relative to China and discourage a manufacturing shift into Vietnam.

The double tax rate on global intangible low-taxed income likely reduces American companies’ tendency to offshore their production overseas. It also might discourage the capital flows into countries with cheap labour, including Vietnam.

As Vietnam’s stock markets officially began trading in 2000, we can only observe the market dynamics for the last five presidential terms. Based on these, the Vietnamese stock market tended sideways or slightly downwards during the US election years, except in 2008, when the market fell sharply due to the global financial crisis. In all other years, market sentiment had been cautious as people waited for the election results and the following policies.

After election years, the Vietnamese stock market showed a one-year upwards pattern, regardless of who won the election. From 2000 onwards, the VN-Index has been rising in each first year of a new US presidency. In 2017, the index jumped 47.8 per cent after President Donald Trump won. At that time, Trump introduced a series of tough policies to exporting countries to reduce trade deficits and protect domestic production, especially because of China, which contributed to international companies moving their operations to other countries such as Vietnam.

When Biden is president, the supply chain shifts from China to Vietnam will be maintained in the medium term as the Democratic Party supports protection- and trade-centred policy. Therefore, the Vietnamese stock market’s performance during the first presidential year of Biden in the US also promises to continue in 2021.

With Biden, the US Federal Reserve will continue to implement easing monetary policy, such as keeping interest rates low. In addition, Biden’s tax plans also put great pressure on the American financial markets.

As a result, capital flows from the US may seek other markets with higher returns to investors, and Vietnam could be one of those. The country also remains a potential market that could attract capital flows from exchange traded funds. Up to mid-November, foreign sells have overwhelmed the market, with net sell value recorded at VND16 trillion ($695 million), while the market ended up being net bought from 2017 to 2019. Foreigners’ selling activities have been increasing by 6 per cent compared to 2019 while buying activities have recorded a drop of 6 per cent.

Joe Biden’s main policies, which are about controlling the COVID-19 pandemic and raising the minimum wage, will turn on the green light for the recovery of the United States’ economy.

Pharmaceutical firms Pfizer and BioNTech have announced 95 per cent efficacy for their vaccine candidate, drawing on the final analysis of a 43,000-person study. This positive news will bring an optimistic sentiment back to the market, both in the US and Vietnam.

To address the impact of the pandemic, Biden has vowed to extend loans to small businesses, increase direct money payments to families, and raise the minimum wage to support young and blue-collar workers – policies which will contribute to the economic growth of the US and may spill over to Vietnam.

According to KIS research, the main beneficiaries will be seafood, aviation, and oil and gas, while banking and property sectors are expected to remain neutral.

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