What's Rampant Inflation Like? Look At Vietnam

Two big stories today: global inflation worries and drug stocks hitting new lows.

Inflation. If you want to see what rampant inflation looks like, look at Vietnam. The VSE, the main stock market index, hit a two-year low today on concerns about soaring inflation, about 65 percent off its historic high in October. Vietnam effectively devalued its currency by 2 percent, according to the Asian Wall Street Journal, to bring official exchange rates closer to black market rates. Consumer prices rose 25 percent in May year over year. Vietnam has been raising rates recently to lower the inflation rate.

This is getting a lot of play in China, where the Shanghai Composite closed down nearly 8 percent to a new 52-week low, after the central bank announced it would raise commercial banks' reserve ratios by a full percentage point in June. That is twice the hike which the market had expected. That index is now 50 percent off the all-time high it hit in October.

Big pharma hits new lows. Elsewhere, big pharmaceutical stocks like Pfizer, Merck , Bristol Meyers , and Sanofi are hitting new lows. Lots of different reasons for this, traders note: for Sanofi, there's word that Total, the French oil company, was looking to unload their stake.....also, continued worries about generic Plavix in Europe, which they share with Bristol.

Merck has been weak on worries over Singulair (their big asthma drug).

For Bristol, there was a negative report out from Bleischroeder on their new diabetes drug, cautious on the data out of the diabetes conference....from a bigger picture point of view, one trader noted, the diabetes conference going on now is a disappointment, in that the field is getting very crowded and these next generation of products aren't differentiating themselves.

There are also broader issues:

1) no new drugs coming, except maybe for the Alzheimer's drug from Wyeth/Elan;

2) another round of drugs coming off patents;

3) a high dividend group, relative to the market and people don’t see that as a sign of safety in a rising rate environment;

4) Finally, don’t underestimate the psychological impact of the continuing decline in Pfizer. It's simple: many people thought that drug stocks were a defensive play with a decent dividend. Turns out the macro situation for big pharma is such that they are NOT a safe, defensive play any more.

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