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Citigroup Inc. (NYSE: C)
March 21, 2008
Citi Investment Strategies for Taiwan Companies Seeking Opportunities in Vietnam
Taipei – "Taiwan is one of the biggest foreign investors in Vietnam. There are over 1,500 Taiwan financed investment projects, many involving small-and-medium enterprises," said Mr. Simon Chung, Head, Global Commercial Bank Citi Taiwan during his opening remarks at a Citi media briefing held yesterday on investment opportunities in Vietnam.
Investment strategies and business opportunities were also presented by Citi experts including Faisal Ameen, Head, Network Relationship Banking and Global Transaction Services, Citi Vietnam and Gautam Hazarika, Director, Product Management, Fixed Income, Currencies and Commodities, Asia Pacific.
Mr. Ameen said rapid industrialization and market liberalization were the engines fueling Vietnam's growth and it is now considered one of the fastest growing economies in Asia. He added that while weakening global market conditions could drag Vietnam's exports down, strong domestic demand and relatively low labor costs continue to attract foreign capital. Vietnam has also begun to tap Middle East and African markets to mitigate the effects of a U.S. slowdown.
Mr. Hazarika noted that strong foreign investment would force Vietnam to accelerate the development of its infrastructure. He said there may be labor shortages in the future, and that companies should also be alert to the risks of a volatile Vietnamese dong and interest rates in the future.
Mr. Ameen and Mr. Hazarika then provided a five-point strategy checklist for Taiwanese companies to consider before investing in Vietnam.
1. Hedge foreign exchange risk
Since late last year the government has increased the trading band of the Vietnam dong versus the U.S. dollar to 0.75 percent (from 0.5 percent). As the Vietnam government continues to fulfill its WTO commitments, massive capital inflow into this investment haven will result in increased foreign exchange liberalization and a more volatile FX exchange rate environment. Thus, companies are advised to actively manage their FX risk through a strategy that involves quantifying their exposures, choosing the most appropriate hedge and regularly monitoring.
2. Track capital regulations
Since the second half of 2006, Vietnam's capital markets have become more active with swelling bank credits and volatile stock markets. The government also adopted tightening measures to curb spiraling inflation. Citi suggests Taiwanese companies have an extensive capital mobilization plan, including investing, capital transmissions and funds generation.
3. Keeping a long-term partnership with financial institutions
As global integration continues for Vietnam, it has relaxed many of the restrictions that previously stunted investment growth. A small change in regulations could have an enormous impact on corporate operations. Keeping a long-term partnership with financial institutions will help companies manage liabilities and obtain preferential deposit interest rates, as well as, have in-time suggestions from their financial partners to cope with legal and regulatory changes.
4. Control the risk of interest rates
The government has tightened monetary policies to rein in rising inflation risk through several measures including more active open market operations, increasing cash reserves and issuance of short term bills for reserves. Citi recommends that corporations adapt a similar risk management strategy as in FX and lock interest rates now, given the expected rise in rates.
5. Target fast-growing domestic market
Over the past ten years, purchasing habits have changed greatly in Vietnam. Many foreign companies are not only manufacturing and exporting products but they are also taking advantage of the emerging local consumption power. New business opportunities include new and chic products, e-commerce services and luxury and consumer electronics.
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