Signals from Southeast Asia: Doves, Hawks, and the Lesser-Spotted Vietnamese Canary
Follow our Twitter and Linkedin Page !
Sign up for our email list to receive each article in your inbox!
Central Banks remain the key market movers in 2023, with policy decisions driving outlooks and decisions across asset classes. With the recent US CPI print coming in at 5%, market sentiment has seen a welcome shift from when we last looked at the Fed as investors look towards the nearing end of the present tightening cycle.
However, with the ‘mini-Banking Crisis’ seen in March, the full extent of downward pressures on CPI from a more hostile business environment remains to be established in light of tightening credit standards, deposit flights and decreased consumer confidence. This has seen a pivot in the Fed narrative in official press releases which have become more reflective since Powell’s hawkish testimony to Congress. We can also see a notable change in market pricing which overwhelmingly favours a pause in policy moves followed by rate cuts towards the end of the year.
Despite concerns about waning US dominance, the Federal Reserve remains the dominant force across the global monetary policy ecosystem. Therefore, changes to future Fed actions have consequences across borders.
One such recent impact has been in Vietnam where the country’s Central Bank has decreased key policy rates for the second time in a row. Vietnam is an interesting economy with relatively high levels of corporate debt and state intervention that underpin a manufacturing powerhouse alongside its neighbour China. The bank announced this change to continue support for domestic growth in the face of an increasingly uncertain macro environment and believed now was the best opportunity to act as a result of the more dovish hints coming from the Fed in light of the recent turmoil with Silicon Valley Bank.
As with any action, once is a mistake but twice is a habit. So, what does an easing Vietnam mean for investors? For now, it seems this move is very transparent and does not yet have greater significance. The cuts favour the idea that this decision was to protect domestic interests and domestic market participants. Overall, they increase liquidity and allow a boost for the country as it tries to meet its 6.5% growth target.
This situation could develop to become a canary in the coal mine in which these moves in Vietnam hint that the time for some form of more dovish policy is closer than we may expect. I strongly believe that any calls that these recent developments in Vietnam are indicative of future Fed policy are riddled with confirmation bias after the brutal macro environment that still plagues investors today.
Looking forward and hoping for simpler times is not a bad thing, but reviewing every macro event as either for or against a monetary policy shift will cause more harm than good. This action may lead to rash decisions backed by indicators or information that has not been fully explored. Alternatively, you may just end up too early to the party for your thesis to be profitable and adaptable in a time where the fundamentals change weekly upon the release of new data.
Stay cautious and know what you don’t know when dashboards, data and headlines are telling you to take a certain action.
See you next time,
Daniel
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.