THE RUSSIA-UKRAINE CONFLICT WILL IMPAIR SOME RUSSIAN INVESTMENT PROJECTS IN VIETNAM, BUT ITS EFFECT ON THE ECONOMY WILL NOT BE SIGNIFICANT

RUSSIAN INVESTMENT

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According to a newly issued macro analysis report by Sunwah Pearl apartment for rent ,sanctions will disrupt a number of Russian investment projects in Vietnam; however, the impact on the economy will not be significant.

On the morning of February 27, the United States, United Kingdom, Canada, and the European Commission stated that they will block certain Russian banks’ access to the international payment system SWIFT. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, was created in 1973 and has its headquarters in Belgium. This is a global transaction messaging system that connects over 11,000 financial institutions across over 200 nations and territories. Exclusion from SWIFT will have a significant impact on the Russian economy.

Iran was unplugged from SWIFT in 2012 because of its nuclear programme, causing it to lose 50% of its oil export revenue and 30% of its global trade.

VnDirect estimates, however, that the withdrawal of Russia from SWIFT will have less of an impact on Russia’s oil and gas exports than in the case of Iran, due to Europe’s reliance on Russian oil and gas supplies. Russia is Europe’s largest supplier of natural gas, contributing up to 35 percent of the region’s supply. If gas supplies from Russia are halted (as a result of Russia’s retaliatory steps), the European economy could be severely harmed.

According to experts, Russia’s exclusion from SWIFT will allow it to employ traditional technologies such as telephones, telegraphs, and email to execute interbank transactions and will encourage Russia’s participation in international commerce. Other technological platforms, such as the Cross-Border International Payment System (CIPS) that China developed in 2015, are also being considered.

VnDirect believes that sanctions, such as banning the SWIFT connection of the Russian financial system, will have a negative impact on Russian investment projects in Vietnam, particularly power and oil and gas projects. According to research conducted by VnDirect, the general contractor for the Long Phu 1 Thermal Power Project (1,200MW total capacity) is Power Machines (Russia), which is two years behind schedule due to an embargo. The Quang Tri gas-fired power project (340MW), in which Gazprom (Russia) has invested, is also two years behind schedule in comparison to the initial commitment. In April 2021, the joint venture Zarubezhneft JSC (Russia) and DEME Concessions (Belgium) signed a memorandum of agreement for the Vinh Phong offshore wind power project (capacity: 1,000MW).

Except for the Quang Tri gas power plant, the Draft Power Master Plan 8 includes two projects: Long Phu 1 and Vinh Phong. Although Vinh Phong has not yet begun construction, the Long Phu 1 project has reached a stalemate since the gadget has not yet been placed.

In addition, Gazprom and Zarubezhneft participate in oil and gas exploration projects such as Block 129-132 (Nam Con Son basin) and the integrated development project of the Bao Vang field at Blocks 111/04, 112, and 113.

However, based on VnDirect’s evaluation, these projects are all small-scale, in the exploration and search phase, and have not yet been deployed. Therefore, the mining closure has little effect on the industry’s size.

Due to the Russia-Ukraine crisis, oil, steel, and fertiliser prices could remain high.

According to VnDirect, the price of Brent oil continues its strong upward pace in 2022 (+30% from the start of the year) and has surpassed $100/barrel for the first time since September 2014, when Russia decided to attack Ukraine.

With the oil price level anticipated to remain elevated in the near future, oil and gas stocks will not only benefit in the short term, but also have a brighter long-term outlook, as high oil prices will encourage Oil and Gas Exploration and Production activities, thereby strengthening the industry’s fundamental foundation.

High fuel oil prices and Russia’s decision to stop the export of ammonium nitrate (NH4NO3) can increase the price of nitrogen fertilizer globally. Russia manufactures ammonium nitrate, a major element in fertilizer production, which accounts for roughly 66 percent of the global supply despite accounting for only 16.5% of the global nitrogen fertilizer export market. In addition, Russia is the world leader in exporting NPK fertilizers. According to VnDirect, makers of nitrogenous fertilizers in Vietnam, such as DCM and DPM, stand to benefit from high fertilizer prices and growing export demand in the near future.

In the meantime, the crisis between Russia and Ukraine has also wreaked havoc on the steel supply chain. According to the World Steel Association (WSA), these two nations produced 97.4 million tonnes of steel in 2021 and exported approximately 57 million tonnes. As of February 24, when the war began to show symptoms of escalation, some of Ukraine’s largest steel manufacturers (including Metinvest and ArcelorMittal) intend to reduce production output to a minimum owing to delays in rail and port operations. While the exports of Russia are at risk of being embargoed by other nations.

VnDirect believes that in the near future, Vietnam’s main steel exporters will have the potential to enhance output. According to Eurofer, Russia and Ukraine are the second and fourth largest exporters of steel to the EU in the first eleven months of 2021, accounting for almost 21 percent of total output. The EU is also the third largest market for Vietnam’s steel exports in 2021, primarily for galvanized steel products. According to VnDirect, therefore, leading players such as HSG and NKG can gain from this growth.

According to VnDirect, the immediate impact of the Russia-Ukraine conflict on the Vietnamese economy is not expected to be significant. Currently, trade between Vietnam and Russia and Ukraine accounts for only about 0.9% of Vietnam’s total import and export value (representing 1.1% of export value and 0.8% of import value in 2021, according to a report by Vietnam’s General Department of Customs), and neither Russia nor Ukraine are major foreign direct investors in Vietnam.

“The Russia-Ukraine conflict could boost inflationary pressure in Vietnam if “oil and gas prices” remain up. According to VnDirect, “however, we still maintain our projection that inflation in Vietnam will be controlled at 3.4% in 2022 (achieving the National Assembly’s aim of limiting inflation below 4%)”.

VnDirect believes Vietnam will continue to promote economic recovery with policies such as the economic stimulus package enacted earlier this year and low lending rates. This would be the basis for the expectation that the Vietnamese economy and the business results of listed businesses will continue to recover and grow more quickly in the following years, consequently generating a growing momentum for the stock market in 2022.

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