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Should they withdraw their deposits to engage in foreign currency trading?
During the same period, the Federal Reserve System (Fed) has tightened its policy four times, raising the federal funds rate by an additional 1%; pushing the target range for the federal funds rate to 5-5.25%, the highest level in 22 years. The strengthened US dollar has caused a relative depreciation of most other currencies. The SBV has actively pursued policies to maintain the value of the Vietnamese dong (VND) against the USD, successfully limiting VND depreciation to roughly 2-3% over recent years, whereas many other currencies worldwide have experienced more substantial devaluations.
Recently, the SBV has resumed its ability to absorb money from circulation by issuing Treasury bills after a temporary suspension lasting over six months. Specifically, during trading sessions from September 21 to September 27, the SBV withdrew almost 70,000 trillion VND from the banking system by issuing these T-bills. Many experts view this action as a clear signal of the SBV’s readiness to employ macroeconomic regulatory tools, particularly with regard to exchange rates. Such a move is the most cost-effective and logical course of action at this time. As a result, the VND is expected to remain stable against the USD by the end of the year, and any potential increase will be within a controlled range of 2-3% against the USD. Given the SBV's commitment to maintaining exchange rate stability, as demonstrated by the aforementioned actions, and the existing regulation stipulating a 0% interest rate on foreign currency deposits, depositors are unlikely to benefit from withdrawing their deposits for investment or currency speculation in this scenario.
Should they consider buying and trading gold?
In early August 2023, gold prices steeply declined, mainly due to investor expectations of continued tightening of monetary policies. However, gold prices rebounded towards the end of August and the beginning of September 2023. Specifically, gold prices plummeted in the first half of the month, hitting a low point on August 18, 2023, at 1,888 USD per ounce, representing a 2.9% decrease compared to the beginning of the month. The significant drop in gold prices was attributed to various economic signals and the firm stance of Fed officials in bolstering investor confidence that the Fed would continue its anti-inflation campaign. Additionally, the People's Bank of China's further reduction of its policy interest rate on August 15th supported the USD exchange rate. However, gold prices suddenly surged in the latter half of the month due to concerns about the decreasing yields of US Treasury bonds and the USD, increasing economic instability in China, and the combined threats of inflation and sluggish growth in Europe. Consequently, by the end of August and the beginning of September 2023, gold prices stood at 1,940 USD per ounce, marking a 0.2% decrease compared to the end of July 2023 and a 6.4% increase compared to the beginning of the year. Should the Fed continue its strategy of reducing inflation from the current 5-5.5% to the former 2-3%, and should Europe and China show signs of recovery, it is unlikely that gold prices will experience significant increases in the near future. Therefore, depositors converting their deposits into gold investments may not necessarily yield profits.
Should they shift deposits into investment, real estate, corporate bonds, and stocks?
The real estate market in 2022 witnessed a period of stagnation, marked by numerous projects facing funding shortages and unresolved legal procedures. Some projects lacked the necessary legal documentation and capital to proceed. The government took assertive measures to address the issue in response to this situation. The initial focus was on streamlining legal procedures. State agencies with the appropriate authority engaged in a comprehensive review and legal resolution for 500 projects. The SBV also directed CIs to reduce interest rates, while the Ministry of Finance oversaw the reestablishment of order in the corporate bond and stock markets, allowing businesses to extend or convert bond debt into assets upon maturity. The combined efforts of the government, the SBV, and relevant ministries have effectively addressed economic challenges in recent months, leading to renewed activity in the real estate market. Furthermore, the bond and stock markets have shown significant improvements, with some companies successfully issuing bonds. However, experts and several news outlets have pointed out that the real estate market has primarily warmed up in segments like centrally-located apartments, rentable commercial properties, affordable housing for low-income individuals, and some urban-adjacent land plots. In contrast, high-end housing, villas, and projects with unclear legal procedures continue to experience limited transactions and stagnant price movements, with some even seeing price decreases.
Although the stock market has expanded in terms of scale, it remains unpredictable, requiring investors to possess a high level of expertise. While corporate bonds have been partially mitigated by new regulations; some businesses have successfully issued new bond tranches and negotiated extensions or asset-backed debt repayment upon maturity. However, lingering concerns persist for some businesses embroiled in legal issues and cannot pay back debt, with authorities yet to disclose the outcomes of their cases. As a result, withdrawing deposits for investment in stocks and real estate remains an uncertain endeavor, demanding a high level of expertise to manage associated risks and realize significant profits beyond traditional bank deposits.
According to the statistics by the Deposit Insurance of Vietnam, the total outstanding balance of insured deposits (of individuals in VND) for the entire system during Q1/2023 was 7.692 trillion VND, marking a 7.05% increase compared to Q4/2022. In Q2/2023, the insured deposit balance amounted to 7.907 trillion VND, representing a 2.8% growth compared to Q1/2023. While complete statistics for Q3/2023 are not yet available, preliminary data suggests that deposit growth continues. These figures illustrate that despite the reduced interest rates on deposits, placing funds in banks remains a trusted avenue for many people. In a context where the real estate market has not fully recovered, the gold and foreign exchange markets exhibit volatility, and the stock market proves erratic, demanding a high level of professionalism for investors, those without solid business acumen continue to opt for depositing their funds in banks as the safest channel, even in the face of declining interest rates.
The information provided herein is intended to assist depositors in making informed and advantageous decisions when engaging in financial, currency, real estate, or banking markets.
Department of Research and International Cooperation (translation)
