The impact of the Russian invasion

The human tragedy rises above everything in the Russian invasion of Ukraine. The absurd violence and the fact that innocent people are getting killed fulfils our minds and cannot be ignored.

However, even with all the ongoing horrors, I summarize the key thoughts, what the war could mean for the Vietnamese economy and its stock market.

First of all, the total value of trade between Ukraine, Russia and Vietnam is around one percent of Vietnam’s foreign trade. Therefore it is irrelevant in terms of risks. Investments and lending between the countries have also been very limited, so there are no write-offs insight, and the crisis will not shake the flow of the foreign direct investments to Vietnam.

Politically Russia and Vietnam are partners, which was seen in Vietnam’s vote in the General Assembly at the UN. Vietnam abstained from voting, as did India and China, and thus did not condemn Russia’s invasion.

Unofficially, Indian Prime Minister Modi as well as Chinese President Xi have called on Russia to end hostilities. Ukrainian Foreign Minister Dmytro Kuleba has asked China to mediate in peace talks. China could very well succeed in this task, but it is not clear if China has a political interest in the crisis. Before the Russian invasion, the US tried to prevent the war by sharing its intelligence information with the Chinese, but China did not respond. China has a reasonable economic interest in Ukraine, e.g. in the arms industry, construction of rail network and agriculture, but the USA’s aggressive rhetoric towards China over the last five years has certainly cemented anti-US attitudes in China’s leadership.

Vietnam’s Foreign Ministry has so far mainly expressed its concern about Vietnamese citizens in Ukraine. Vietjet-airline has requested permission to fly Vietnamese refugees back home from Poland.

Rising oil and gas prices are not critical issues for Vietnam, as it is quite self-sufficient with these raw materials. The key questions for this year are related to the uncertainty about demand in Europe and in the US. Demand is now threatened by the effects of the tightening of the monetary policy especially in the USA, and the impact of the war on the economic growth in Europe.

So far the Vietnam stock market has reacted moderately to the war, as 95 percent of the exchange’s daily turnover comes from local investors. If the war escalates and drags on, I expect the Vietnam stock market to have some weak trading days in the coming weeks, even though the outlook for the Vietnamese economy in 2022 is still very bright. If the situation calms down, I expect the Vietnamese stock market will continue to move upwards supported by positive earnings releases. Not to forget, that the need for the US and Europe to start tightening the monetary policy will continue to create uncertainties in 2022.


Important information regarding the text and the Fund

The material presented in this text is based on PYN Fund Management’s view of markets and investment opportunities. PYN Elite Fund (non-UCITS) invests its assets in a highly allocated manner in frontier markets and in a small number of companies. This investment approach involves a larger risk of volatility compared to ordinary broadly diversified equity investments. The value of an investment may decline substantially in unfavorable market conditions or due to an individual unsuccessful investment. It is entirely possible that the estimates of economic development or a company’s business performance presented in this presentation will not be realized as presented and they involve material uncertainties.