Thread by @Trinhnomics

Guys, did you know that Vietnam funds its 10-yr at local currency for 3.56%. That is low, esp because of its below investment grade status, which means that domestic liquidity must be rather flushed!

China funds the 10-yr for 3.22% vs Vietnam's 3.56%😯 & their rating very diff👈🏻

Quick Vietnam story as got a million things to do. Did u know that Vietnam is a young country? Post Vietnam war obvs (culturally old but country is young). Vietnam had a hard time growing w/ collectivization/pure communism to grow (did expand literacy). Had to change in late 80s

They call it Doi Moi (meaning new era) which means more price-based vs just planned driven. Progress was slow but happened. Created a central bank etc. Started to privatize (equitization) but very slow. Country was very poor & had to try to grow w/o CAPITAL & SKILLs.

What to do?

Btw, why was the 1980s hard? Soviet Union crumbling so less help. Vietnam war w/ China ended in 1979 so less help there. Overall miserable being Vietnamese in the 1980s

So Doi Moi. Started to play the "reform" game & official development aid (ODA) & trying to get help on growing

So the World Bank, Asian Development Bank etc started to get involved. The Vietnamese gov started talking to other countries (e.g. the West, which includes Japan) & basically BORROW A LOT OF EXTERNAL DEBT IN ODA.

What does that mean? Almost free $. Also opened up shop for FDI...

Factories started to set up in Vietnam b/cwas cheap etc. The gov didn't know how to manage so what happened? Too much FDI into unproductive real estate etc. Bubble built up in exps of Vietnam joining the WTO in 2007, yes right middle of GFC. People thought it'd be a mini China.

Poured money into Vietnam - both direct investment and portfolio investment. Vietnam DID NOT HAVE THE ABSORPTIVE CAPACITY for so much capital & a lot went into real estate. Hence Vietnam's banking sector crisis around 2010-2011.

Also spent a ton of $ wastefully after the GFC.

So what? Well it did what it always did - inflate the DEBT away via high inflation. Yes >20% etc. NPL was high. EM was doing so well but not Vietnam. Vietnamese did not want to hold VND & held USD & gold etc.

How to repair such a bad balance sheet? We know now it made the U-turn

Simple, it NEEDED $$$. But more than $$, it needed jobs. So the gov started asking firms like Intel, Samsung etc to set up shop in Vietnam by basically providing incentives like taxes, infra, land etc. At 1st investors were reluctant but they came as Chinese wages rose.

FDI = $$

But more importantly, FDI =investors' long-term vote of confidence. I wrote this in the FT op ed. And they did. They made long-term bets in Vietnam despite the volatility of the VND etc

Vietnam started getting $ it needs. It also curbed excessive credit growth & reduced imports

Let me show u this whole thread in 1 chart. I was very involved in Vietnam during its crisis & have to say that I played a small part in its recovery.

Chart shows current account balance as a % of GDP & 10-yr yield. That relationship is IMPORTANT

Yield high = liquidity stress

So remember I said Vietnam wasted a lot of $$ after the GFC? Current account DEFICIT was 11% of GDP in 2008.

Yes. Now it's +2.4% in 2018. When u don't have $ & ur banking system is under stress, then there's LIMITED FUND TO BUY GOVIES & so gov has to pay up (obvs CPI key too)

So now w/ a current account SURPLUS & loan to deposit ratio FALLING, which means liquidity is flush, then u can see why the gov is funding cheaper.

Obvs we are not talking about the supply of govies here & that's also a factor.

Thread ends. So get FDI if u want steady funding👈🏻