Vietnam Devalues Its Currency as Equities Approach Bear Market

Vietnam devalued its currency for the third time since November, moving to reverse a slump in exports that helped to drive stocks close to a bear market.

The dong dropped 1.1 percent to 19,320 per dollar as of 11:22 a.m. in Hanoi, after touching a record-low 19,425 as the central bank lowered the reference rate by 2 percent. The Ho Chi Minh City Stock Exchange’s VN Index dropped 1.7 percent to 455.49, extending its decline from the May peak to 17 percent, near the 20 percent that would indicate a bear market.

A weaker currency may boost exports and demonstrates the government’s focus on boosting economic growth over further easing inflation, said Prakriti Sofat, a Singapore-based economist at Barclays Capital. Prime Minister Nguyen Tan Dung said in June the economy may expand as much as 7 percent this year, beating the 6.5 percent target, from 5.3 percent in 2009.

“The main reason for the central bank’s move is to balance onshore foreign-exchange demand-and-supply and to support exporters,” Sofat said. “Vietnam largely exports low value- added goods and typically competes on prices.”

Vietnam’s trade deficit widened in July from the previous month on falling exports. The shortfall reached $1.15 billion from a revised $742 million in June. For the seven months through July, the gap was $7.4 billion, almost twice the figure for the same period last year.

(via: bloomberg.com)

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