Thursday, July 2, 2009

The Debts of the Lenders: Vietnam, the Canary in the Coal Mine

For the past 25 years (China) and past 15 years (Vietnam), GDP growth has been 9-12% consecutively - year over year. In some provinces and cities, it was more like 16-18% growth rate (for ex: Shanghai or Ho Chi Minh City). They are 2 of the most dynamic emerging markets and more politically stable beta countries out there in the index.

But all that growth was based on EXPORTS.

For the first time in almost a generation, GDP growth in these 2 Asian countries is being led by STIMULUS - aka govt money printing. How long can it last? I don't know. But the signs are telling.

A slowdown in the export market has forced the govt to adopt inflationary tactics to provide a bump in the economy.

I like to compare Vietnam as an analogous to the Chinese situation - it is China in the early 1990s. But w/one important difference - Vietnam has a smaller forex reserve than China. And therefore is more vulnerable to shocks in the export market. There is an economic dislocation going on - deflating property and equity bubbles while rising food and energy prices.

Combine the 2 and you have the potential for severe political unrest. Perhaps even the potential for an Vietnamese or Chinese Mousavi to emerge (a reference to an Iranian politician whose rise to prominence was fueled by economic dislocations in a deflating property bubble and rising energy/food prices).
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