Businesses in Vietnam face a cash shortage that is preventing as much as $24 billion that could be invested in the nation’s $250 billion economy, according to a study by PwC Vietnam.
The financial services company analyzed the 500 businesses in Vietnam with the highest revenue that have been listed on both the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange for the last four years or more. PwC Vietnam analysts said that those companies’ “cash conversion cycle” has increased, meaning that they have to wait longer from the start of the business cycle, when they first make their investments, until those investments start to pay off in the form of revenue.
“We continue to see cash flows being sacrificed to attain top line targets in Vietnam, which is not sustainable for businesses in the long run,” said Mohammad Mudasser, who leads the working capital management practice at PwC Vietnam. “Managing operating working capital is a cross-functional responsibility,” he added.
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Top line refers to revenue, while bottom line refers to profit.
To sacrifice cash for the sake of revenue targets usually means that companies are willing to make an initial cash investment, often to buy inventory that can be sold for revenue. However the long cash conversion cycle suggests that there are some inefficiencies along the way, such as longer wait times between billing a customer and actually collecting the payment.
While there is no perfect business cycle, the PwC Vietnam study suggests companies in Vietnam could tackle some inefficiencies to unlock further potential in the already fast growing economy.
In 2018 Vietnam had one of the highest cash conversion cycles in Asia, at 67 days, which is an increase of two days compared with 2017, according to PwC Vietnam. That compares with an average in Asia of 58 days, and in particular 64 days in neighboring Thailand and 54 in Malaysia. That means those other Southeast Asian countries are able to turn their investments into cash sooner than Vietnam does.
One reason that companies do not want to have such a long cycle is that it makes them more vulnerable to debt. When they have to wait a longer time to receive payment from customers, some companies go into debt to cover their expenses.
“The fast-growing companies had significantly higher short term debt growth, indicating risks to the sustainable growth of these companies,” PwC Vietnam, a consulting company that sells tax and accounting services, said in a press release.
If the U.S. Federal Reserve Bank increases interest rates in the coming year, as some economists are expecting, emerging markets, such as Vietnam, could follow. That would increase borrowing costs for companies, increasing their vulnerability to debt.
In turn that could limit the economy’s potential. The Asian Development Bank estimates that Vietnam’s gross domestic product grew by 6.9% in 2019 and will grow by 6.8% in 2020.
PwC Vietnam looked at the inventory, expenses, and outstanding invoices of the 500 listed companies that it analyzed. Based on that, it estimated there was $24 billion “trapped in net working capital.”
However it estimated that only a fraction of that capital could be released, $11 billion, because some of the capital has to stay in the business cycle. Analysts said inventory and outstanding invoices, known as accounts receivable, where the best bet for improving efficiency. That could mean that too much inventory is being held, or that companies are waiting too long to be paid by customers.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
