May 25, 2018

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Austerity v. Growth

The War over Austerity v. Growth

Austerity vs Growth

Austerity vs Growth

Should governments focus on borrowing less to finance their spending — or rather focus on spending even more, to promote economic activity, giving debt reduction a lower priority? This is the austerity versus growth argument that divides economists into two increasingly vocal opposing camps offering policymakers conflicting advice. [Read more…]

The strongest major currency

Japan Currency

Japan Currency

Japan, another nation with some fine companies, continues to struggle with the aftermath of its own financial bust, which predated the American one by almost two decades. Many years of fiscal spending, much of it wasteful, has insulated its economy against collapse, but has left it with a huge burden of public debt – about 200 per cent of GDP in gross terms, and about 120 per cent in adjusted terms after stripping out inter-government liabilities. [Read more…]

What is the Global Crisis About

Switzerland Central Bank

Switzerland Central Bank

The decision by Switzerland’s central bank to devalue the nation’s currency by pegging its exchange rate at 1.20 to euro – at a lower level than previously set by the free market – and to “print” an unlimited amount of francs to finance purchase of foreign currencies, is the latest sign of panic by global policymakers. [Read more…]

The shares: base-building for lift-off?

The shares: base-building for lift-off?

Vietnam rising

Vietnam rising

If you are interesting in making a speculative bet on Vietnam, the easiest way to do so is through one of the ETFs such as db x-trackers FTSE Vietnam (listed in the UK, Germany and Singapore) or Market Vectors Vietnam (in the US).

The longest-established foreign-managed investment trusts are those run by Dragon Capital and listed in Dublin. Other Vietnam collective funds include the Vietnam Opportunity and Holdings trusts listed in London, Vinaland, the SGAM Vietnam Opportunities Fund (Ireland) and JF Vietnam Opportunities (Hong Kong).

London analyst David Fuller comments that Vietnam’s weak currency will improve its international competitiveness, its stock market valuations in terms of historic price earnings are the lowest in Asia, and “the long history of frontier markets indicates a tendency to range indefinitely, almost falling off investors’ radar – before advancing several hundred per cent.”

He says that this year “I am likely to increase my small personal exposure to Vietnam.”

•    Vietnam Rising Dragon, by Bill Hayton. Pub. By Yale University Press, ISBN 978-0-300-15203-6.

CopyRight – OnTarget January 2011 by Martin Spring

The above article is the final article in the series which started with

Vietnam: a Speculative Bet on the Future

and was followed by

The problem of bloated giants

Vietnam: Rising Dragon


New From: £19.70 GBP In Stock

The problem of bloated giants

The problem of bloated giants

Vietnam Finance

Vietnam Finance

Unlike its huge state-capitalist model China and its regional competitor Thailand, Vietnam runs a huge foreign trade deficit — $12 billion last year. And unlike them, its controlled currency is being devalued rather than rising in value. With inflation running at 12 per cent and interest rates for bank deposits held low, savers are fleeing the national currency, the dong, for US dollar bills and gold.

At the core of the problem is a policy of channelling resources into promoting huge state-owned groups, managed by bosses appointed usually for their party family origins and connections rather than competence, and given too much freedom to build their empires without adequate central oversight.

They have been favoured with government preference such as monopolistic privileges, plus unlimited access to cheap credit without much control over their headlong expansion, often into business areas where they have no experience.

The consequence has been the emergence of bloated giants loaded with money-losing or unproductive operations, which have deprived the thousands of small businesses in the private sector of the resources they need to expand. There are few private businesses of any size.

The Economist reported recently: “These corrupt and inefficient behemoths continue to gobble up and then squander a good share of the foreign investment and export earnings that come into the country.”

According to economic analyst Nguyen Quang A, the state-owned enterprises consume 40 per cent of national resources, yet deliver only a quarter of national output.

The economic crisis has been brought to a head by the spectacular financial crisis at the ambitious shipbuilder Vinashin, which last month defaulted on a $60 million capital repayment due on a $600 million foreign loan. Interestingly, the government for the first time refused to bail out one of its troubled children, although it did provide funds to ensure that the group’s employees were paid.

Moody’s, the credit rating agency, reacted by downgrading Vietnam’s sovereign debt. That makes it more difficult and expensive for the big state-owned enterprises to borrow abroad, and will force them to cut back on expansion – most of which favours, through widespread corruption, the newly-wealthy party-connected families.

Hanoi, comments The Wall Street Journal, “is reaping the consequences” of trying to use cheap credit to spur economic growth, while neglecting fundamental reforms.”

Among those necessary in addition to a crackdown on high-level corruption are imposition of financial discipline on the state giants and reductions in their privileges, major improvement in technical training, modernizing university education (less emphasis on Marxist-Leninist studies, and clamping down on fake qualifications), depoliticization of the legal system and modernization of the banking system.

The Vinashin event and its consequences could be the shock that drives the party leadership to institute radical changes, as it has done before. It may now realize that it must institute reforms if it can create the million additional jobs a year that they know must be created to accommodate the fast-growing labour force if they are to remain in power… and their families are going to continue enriching themselves.

Vietnam has a huge potential to attract foreign investment from multinational companies following the well-known “China Plus One” model – build a huge production source in China, because you have to be there, but develop at least one other in another attractive country, so you don’t totally depend on China.

Vietnam has already managed to attract major investors such as Canon, Samsung, Intel and Hon Hai. Interestingly enough, the biggest foreign investor by source country is not China but Taiwan, the mainland’s political rival.

Ironically, although Vietnam claims to be a Communist country, it practices a variety of savage capitalism. According to an excellent new book*: “The sick have to pay for healthcare, parents have to pay for schooling and the unemployed are left to fend for themselves.”

Clearly visible to visitors such as myself, the Vietnamese have all the qualities of commitment to hard work, thrift, education and determination to advance themselves that offer explosive potential for economic growth if only some of the deadweight of the exploitive party dictatorship were to be lifted from their necks.

this article is a continuation from – Vietnam: a Speculative Bet on the Future

and is followed by the final article – The shares: base-building for lift-off?

CopyRight – OnTarget January 2011 by Martin Spring

Why the Eurocrats Imposed a Bailout on the Irish

Bank of Ireland

Bank of Ireland

Why was it necessary for the European authorities to force Ireland to accept a painful “rescue” package that the Irish themselves said wasn’t necessary? [Read more…]

The Financial Crisis: the Prime Suspect is…

US Federal Reserve

US Federal Reserve

Perhaps the most frightening aspect of the US Federal Reserve’s decision to “print” money on a mind-boggling scale is that if it fails to trigger stronger, sustained growth in the economy, it will seriously damage public confidence in the competence of central banks and governments. [Read more…]

Blame it on Those Crazy Asians

Shanghai Bund

Shanghai Bund

The fundamental problem in the world economy is deflation brought about by over-supply that was not recognized until the credit bubble burst, argues Russell Napier, a highly-regarded strategist at the CLSA investment bank.

In North Asia a system that targets full capacity and full employment, with little interest in return on invested capital, is designed to over-produce. [Read more…]

The Case for Investing in China Now

Since equity markets bottomed in July, US stocks have risen about 17 per cent – but China-listed shares have done much better, climbing about 24 per cent. Yet that has happened despite very different financial environments.

In the US the American central bank (“the Fed”) is flooding its system with money, deliberately aiming to promote a stock-market boom whose “wealth effect” it hopes will stimulate consumer demand, strengthen economic recovery and create jobs. [Read more…]

The Banking Conspiracy

It seems to have been left to a handful of financial journalists to expose the way the cabal of bankers, politicians and regulators governing global finance have conspired to cover up their guilt in bringing about the credit-based economic collapse. More worrying is the way they have diverted attention from the fundamental causes of the credit disaster and avoided enforcing the changes necessary to prevent a repeat — thus ensuring that in future there will be an even bigger bust. [Read more…]