Thursday, June 5, 2008

Entry for June 06, 2008

After a better than expected jobs and retail report all the fence sitters fell to the bullish side. For a long time sentiment is will be a good indicator for how the financial markets will do for the rest of the year, though overall for the economy much of the bad news seems to be priced in or furthermore being priced in. Despite high foreclosure rates and crude oil returning to levels to $128 per barrel seemed not to deter the bullish sentiment. However, the close of today might be a good indicator of where the markets will be next week. So far the us Equity indexes are acting as I predicted as no support levels were broken, with better than expected news. Though, in my opinion much risk is still looming that may come from the Asian markets and high inflation levels across countries. Watching monetary policy will be essential in order to predicted economic performance which still may be tightly correlated to financial markets as a full bull market is not yet underway, despite an early mentality (of bullishness) which is what is needed to start a sustained rally.

As for news in Vietnam:

A continued short term bearish sentiment is weighing down on the VNI as it is continuing to hit lows. Though, long term support of 400 is temporarily holding, though momentum would seem to indicate longer support at 300 from January 2006. However, since Vietnam is developing rapidly with 7-8% percent GDP with year to day inflation levels above 20% with a widening trade deficient, I would not give weight to a traditional reading of technical charts. The fundamentals of the economy are stronger indicators, and are closely tied to untested inexperienced policy makers. The government has taken action to slow down growth and cap inflation. Much expectation is weighing in on June, I believe that these are premature expectations and the financial markets will take a toll and it will not be unexpected to see the stock reach the 300 levels again. Any policy, if effective, will not be seen till the end of the quarter or the end of the year due lag effects. However, government intervention is also possibly for short side (though short side doesn’t exist), to float markets if volatility is too much. Also, the trading band should minimize some risk as well, though one should not count on this as downside protection.

As for the currency, the free markets the dollar is trading at all time highs of around 18,000 + vs the VND; while the banking systems are still trading around 16000+. Strong demand on the dollar can come from a number of reasons. Due to high inflation of the country and lack of faith in the government, many people maybe seeking dollars. Also, curbed growth should weaken the VND if interest rates are raised enough.

Despite this, there maintains medium term to long term bullish outlooks for Vietnam. Despite short term volatility, there has been increased number of companies wishing to be listed on the HOSE and the Hanoi bourse. Furthermore, FDI inflows have been strong from the start of the year.
In general, gold prices have been soaring as people are hedging against inflation. Though oil exports have been helping the country in actual output, this does not offset the other petroleum imports needed to grow the country. This is only one example of much growth within the country will little output. If growth continues in this manor the economy will not be sustainable and might possibly see a crisis.

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