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April 19, 2013 • 1:11 am 0

VAM: Vietnam Market Analysis – March 2013

The indices were mixed in the month of March. While the VN-Index gained 3% to close at 491, the HNX declined by the same quantum to 60.25. The VN30 edged up 0.62% to close the month at 552.3. After being net seller in February, foreigners have turned to net buyer with the value of USD55.6mn this month, suggesting that although difficulties still persist, sentiment was slightly improved.
 
Rate cuts to aid growth as inflation eased
A month after Tet, macro data indicated a significant weakness in total demand. Retail sales increased only 11.7% YoY in the first quarter, slowing from a 21.8% YoY pace in the same period last year. Besides, GDP expanded merely 4.89% YoY in 1Q2013, edging up from 4.75% YoY in the same period last year when growth was the slowest since 1999. A weak demand and noticeable deceleration in food and food stuff index caused CPI to decline 0.19% MoM in March, easing inflation to 6.64% YoY from 7.02% YoY in February. As inflation eased, the Central bank cut rates for the seventh time since the start of 2012 to spur growth. The cap on Dong deposit interest rates is reduced to 7.5% from 8% while other implemented rates such as refinancing and discount rates are lowered by 1% as well.
 
AMC plan not yet finalized; credit almost frozen
The establishment of a debt asset management company (AMC) was delayed until at least the end of April as government is skeptical about how much the company can help resolve bad debt between banks and businesses. On the other hand, the bank lending is still very weak as the credit growth only reached 0.1% YTD in the first quarter although the target for this year is 12%. While the economy is struggling with a slowdown of lending, the postponement of AMC might disappoint market further.
 
Dong still firm despite trade figures
According to GSO data, there was a trade deficit of USD300m in March, widening from a revised deficit of USD94mn in February. Nevertheless, the Dong remained stable as the year-to-date trade balance still remains at a surplus of USD481mn. After first three months of 2013, export increased 19.7% YoY while import improved 17% YoY as well. The unexpected improvement in import this month, in which imports of machinery and equipments was up 28.7% YoY should be viewed as the signal to preliminary recovery from manufacturing sector. Indeed, the HSBC PMI index posted in the positive territory at 50.8 in March, reaching the highest level since April 2011.
 
Challenging business environment
The Vietnamese Chamber of Commerce and Industry has announced the result of the Provincial Competitiveness Index (PCI) in 2012. The decline in median PCI score in 2012 reflected the slowdown in improvement of business environment across provinces. The most notable finding from the survey was that both foreign and domestic enterprises are more pessimistic about future prospect as optimism of enterprises, measure by the share of firms willing to expand in the next two years, has fallen to the historic low level of 33%. In addition, recent surprising petro price hike by 6.5% would make things more challenging as it would eat into businesses’ profit margin and hurt consumer spending.
 
Government’s effort to unfreeze the real estate market
Following the commitment to help the real estate sector, the SBV has revealed a draft of the social housing program. In which, 3% of the total loan book of 5 state owned banks will be dedicated to the social housing fund.  Buyers and developers of social houses will be provided loans with preferential interest rates in 10 and 5 years, respectively. For the first 3 years, starting from 15th April 2013, the lending rate will be 6%. The program is expected to bring some cheers to real estate developers and home buyers, however as most inventories are in mid and high end segments, the program may not be effective enough to rescue the whole troubled real estate market
 
Our View – Despite some modest improvements, the first quarter of 2013 still ended with lackluster GDP and credit growth, coupled with a challenging business environment. Indeed, as domestic retail sales still remained weak, much of improvement was from external demand rather than from internal demand. All of these revealed that the economy is still struggling and may not have reached the bottom. Fortunately, recent effort of the government to spur growth has buoyed the stock market somewhat and hopefully it could buoy production and business activities as well.  After a sudden hike in petrol price that brings back the inflation risk, we think the scope for further rate cut is limited. Hence, in the long run, resolving the core problem (bad debt) still plays a critical role in regaining domestic confidence and recovering the stagnated economy.
We keep our cautious view on the economy and the stock market until clearer signs of recovery surface. In the mean time, as the AGM season has started, we will focus on screening for companies that still do well in the difficult time.

Filed under: News, Risk Management, Vietnam, , , , , ,

March 13, 2013 • 1:46 am 0

VAM: Vietnam Market Analysis – February 2013

After a long Tet holiday, rumors about financial policy changes and further arrests of top bank leaders emerged and eroded all the stock market’s gains from the beginning of February. Consequently,  the VN-Index closed the month with a 0.52% loss, whilst HNX shed 1.05%. With a 3.05% fall, the VN30 seemed to be even more sensitive to the panic.
 
Inflation subdued in the month of Tet
Thanks to the phasing out of pharmaceutical products price increases, inflation slowed somewhat in February as the consumer price index climbed 7.02 percent YoY (versus 7.07 percent YoY in January). The concerns about the “traditional” consumer price hikes during the Tet holiday did not materialize, partly due to weaker festive demand than usual. The government also decided not to raise retail prices of petroleum products including gasoline to ensure economic stability and keep inflation under control. However,  Ministry of Finance did not provide the information on price stabilization fund balance for petroleum products, so it remains unclear on how the gasoline price control will transpire in the coming time.
 
Trade surplus continued, foreign reserves given a boost
According to GSO, the trade balance in February continued to show a surplus, reaching USD900mn, the highest monthly level ever and the ninth month of surplus in a row. With this result, following the USD700mn in Jan, the YTD trade surplus is now around USD1.6bn, a comfortable level which should lend healthy support to the already strong foreign reserve (by Vietnam standard) and consequently the value of the Dong. However, exchange rate showed unexpected volatility in the first two weeks after Tet, possibly due to brisk actions in the gold market and the upsetting rumours. To comfort the market, a Central bank spokesman has stated that no depreciation is being planned for the foreseeable future.
 
Newly released NPLs figure eased concerns on banking system reform.
While the Prime Minister requested to establish the AMC in 1Q 2013, the new NPLs figure released by the Governor was encouraging. Accordingly, bad debt on banking system has come down from 8% in June 2012 to 6% as banks wrote off non-performing loan balance at the end of last year. As the Government set credit growth target of 12% in 2013 to boost economic growth and implement the “dual-targets”, the destination for credit flow is still at stagnation point. Whilst total liquidity (M2) increased 3.31% YTD, the credit growth up to 21 Feb was till in negative territory at – 0.16% YTD.
 
Business environment still appears challenging
In line with stagnation on the supply side, demand remained weak with retail sales increasing only 3.6% in Jan-Feb period, which is not different from Dec 2012′s level. While the inventory level hiked 19.9% Y-o-Y, industrial production showed no improvement. In a related note, the government released that by February, the number of enterprises going out of business was 8,600, which exceeded the figure of 8,000 newly created enterprises, implying the fact that the business environment is still very difficult.
 
A bumpy recovery progress reflected by a drop in the PMI.
After adjusting for seasonal factors, including the Tet holidays, the HSBC Vietnam Manufacturing PMI posted 48.3 in February, down from 50.1 in January. This has been the largest dip since last August. Notably, in February, the survey showed a first drop in four months of manufacturing output; a decline in the level of new order received and a sixth time in seven months increase in average input prices.
 
Our View – After a long Tet holiday, the stock market was hit by negative rumors about possible currency devaluation, financial policy changes and further arrests of banking officials. Although these rumours were addressed and corrected in a timely manner by the relevant authorities, the stock market and economy in general showed its uncertainty and vulnerability. In 2013, the story will be mainly about boosting production and restructuring the economy. Fortunately, Vietnam’s leaders’ determination is supported by a relatively stable currency and a healthy trade balance.
We remain cautious and will carefully watch development in the political space and changes in macro economy as that will definitely affect the stock market. We are generally comfortable with our equity position but may look to selectively acquire more stocks if the macro environment becomes more favourable.

Filed under: Banking, News, Risk Management, Vietnam, Wealth Management, , , , , , , , , ,

February 22, 2013 • 1:40 am 0

VAM: Vietnam Market Analysis – January 2013

All indices recorded strong gains in January as investors’ sentiment improved
The VN-Index surged 15.5% to close at 479.8 while the HNX jumped 9.7% to 62.62. The VN30, after reaching its all time high at 577, eased back to 564.01 at the end of the month, gaining 16%.
 
Timely measures to give market a boost
With effect from15th January 2013, the trading band on HSX and HNX have been loosened to 7% and 10%, from 5% and 7%, respectively. Besides, SSC also introduced other measures to support the stock market such as tax incentives, allowing to issue stocks below par value, increasing margin ratio and most importantly, increasing foreign ownership limit by non-voting rights in some selective industries (namely at weak banks to over 30%, and at securities companies to 100%).
Furthermore, SBV also intends to participate in domestic gold trading to stabilize domestic gold price, closing the gap with global price, thus discouraging people from holding too much gold. Those measures to boost the stock market, especially the possibility on increasing foreign ownership and the proposal to tighten gold control have somewhat created the wave of optimistic buying in January.
 
A wave of Japanese FDI and record remittances to welcome Tet
According to the Ministry of Planning and Investment, FDI disbursement in January reached USD420mn in total, up 5% YoY. Total newly registered and top-up capital grew 74% YoY, of which newly approved projects registered USD257mn, a 293% YoY increase, and top-up capital touched USD24.3mn, rising 25.2% YoY. Japanese became the biggest investor making up 57.6% total newly approved projects so far this year.
Thanks to the surge before Tet holiday, total remittances this year are estimated at a record USD10 billion. The total foreign reserve has increased to USD26bn, equivalent to 2.3 months of imports, a historical high and an 8.3% increase from USD24bn as at the end of 2012. The healthier FX reserve helps to safeguard the value of the Dong.
 
Tet, on the other hand, narrows trade surplus
Januaryrecorded a smaller trade surplus as demand for imports increased before Tet holiday. Exports exceeded imports by only USD200 million in January, after a revised trade surplus of USD498 million in December. From the previous month, export value decreased 2.5% while the import value edged up about 0.4%, although both of them showed huge improvement, more than 40%, compared to the same period last year. Foreign invested enterprises continue to be the leading sector with 66% and 55% of total export and import value, respectively. They also outperform domestic sector in terms of more import growth and less export reduction during the first month of 2013.
 
Credit drop and CPI jump surprise market.
The industrial production index (IIP) decreased 3.2% from December amid pessimistic outlook for stagnation on retail sales. Indeed, consumers continued to reduce spending at the prospect of lower income and no year-end bonus. The retail sales edged up just 2.2% MoM in Jan, the month before a long Tet holiday. As a result, credit dropped 1.06% YTD, according to the press release from a government meeting.
In contrast, January’s PMI moved in a different direction with the IIP since it increased to 50.1 from 49.3, thanks to modest improvement in new order volumes from domestic market and marginal job growth. Amidst stagnation of industrial production and credit growth, a solid increase in average input prices, a component of PMI basket, after a marginal reduction in December, suggests that SBV should be more cautious about further easing as inflation risk came back from the beginning of a new year. Jumps in health care (9.5% MoM) and foodstuff (1.96% MoM) items led CPI to soar 1.25% MoM (7.07% YoY) in January, exceeding market expectation. Accordingly, inflation risk puts any rate cut rumors on hold until at least after Tet holiday.
 
Government charts out tasks for banking sector with focuses on inflation control and bad debt resolution
Main objectives of SBV in 2013 continue to be curbing inflation, stabilizing macro economy alongside with restructuring banking sector and tackling NPL issues. For 2013, the SBV targets to keep credit growth at 12%. Importantly, SBV has submitted to government the plan that allows AMC to purchase bad debts based on book value (after provision) and pay by bonds to the bank. Banks could use AMC bonds as collateral to get cheap fund from SBV at a discount rate. Commercial banks with NPLs higher than 3% will be forced to bring down their NPLs to 3%.
On the other hand, as there are many linkages between real estate market and NPL problems in banking system, government also issued the Resolution No.2, which introduces several tax incentives, credit line for low income individuals to purchase social houses and transferring commercial housing projects into social housing. However since social housing only accounts for a small portion of property sector, we think these solutions are not effective enough to rescue the whole troubled real estate market.
 
Our View – Bullish momentum remained in the first month of 2013 thanks to good round of macroeconomic indicators release. While capital inflow continued being positive, actions of authorities looked effective in boosting the market. However, as stocks ran too high and too fast during the last two months, we start to be skeptical about the strength of this momentum. A month before Tet, inflation risk seems to be coming back and industrial stagnation looks a bit tense. We maintain a cautiously optimistic view and relatively high equity holding, particularly stocks with strong fundamentals in consumers, pharmaceuticals and materials sectors. As Government is showing more and more determination to improve the economy and clean up the banking sector, stickers with strong cash flow, low debt and high beta are also in our consideration to pick up to ride the market’s uptrend.

Filed under: Exchanges, News, Vietnam, Wealth Management, , , , , , , , , , ,

January 18, 2013 • 1:32 am 0

VAM: Vietnam Market Analysis – December 2012

Improved economic conditions somewhat buoyed the stock market in the last month of the year as all three indices moved up
The VN-index closed at 413.7, gaining 11.23% while VN30 closed at 485.4, picking up 9.42%. HNX was the best performer of three indices, increasing 11.83% to close the month at 57.09.
 
Macro indicators showed joyful December
Market confidence was regained thanks to better-than-expected CPI, trade balance, interest rates cut and detail implementation of the Government on spurring the economy. For the first time in four months CPI slowed in December, with consumer prices rising 6.81% from a year earlier after climbing 7.08% Y-o-Y in November. Consequently, the State Bank cut benchmark interest rates for a sixth time to help companies cope with difficulties in production and business. The trade balance posted a first year of surplus (of US$284mn) since 1993. Despite a gloomy year, FDI disbursement reached USD10.5bn, dropping a marginal 5% YoY. As a result, foreign reserves are significantly improved, reaching US$24 billion, equivalent to 12 weeks of import. The Dong remains unchanged.
 
However, stability was achieved at the cost of growth
Vietnam’s economy expanded at the slowest pace in 13 years in 2012 as a slump in bank lending dampened domestic demand. GDP grew 5.03%, down from 5.89% in 2011, and the lowest since 1999. Bad debt and the gloomy business environment hampered credit growth, which ended 2012 at 6.45% YoY while total liquidity growth and deposit growth were 19.85% and 20.29% YoY, respectively.As the lenders’ liquidity position becomes comfortable and full-year inflation was a lower-than-expected 6.81%, the central bank decided to cut all policy rates and deposit cap rate by 1%, effective on December 24, in an attempt to make banks lend more. But as the real interest rate is still positive, some are speculating on another rate cut, even as the World Bank warned against easing too soon.
On the other front, the HSBC’s Vietnam PMI index fell back to deterioration in December, down to 49.3 from 50.5 last month, as a result of reduction in order inflows, disinvestment of inventory holdings and stagnating production volumes.
 
Government details its determination to spur the economy
To spur the economy and resolve the financial system, the Government started implementing a detailed action plan. Businesses may enjoy lower corporate income tax rate in 2013, i.e. 23% for large enterprises and 20% for SMEs (down from 25% earlier); real estate will receive more support based on a newly approved proposal by MoF, which includes a 50% VAT reduction, 2-year extension on the deadline of land use fees payment and the establishment of AMC aiming to solve rising NPLs. Moreover, USD300mn from Asian Development Bank in a 25-year loan package will help to restructure SOEs in 2013.
 
Authority changes rules to push the capital market
On the capital market, SSC submitted its proposal in support of the stock market to the Ministry, in which key measures might include tax incentives, allowing to issue stocks below par, increasing margin ratio and trading band and most importantly, increasing foreign ownership limit. Otherwise, SBV governor also announced that they are working on revising the Decree 69/2007, wherein special cases, i.e for restructuring commercial banks, the foreign ownership ratio might be allowed to exceed 30%. Since 10th January, the number of gold bar shops will decline from 8,000 to 2,400 including around 900 in Ho Chi Minh City and 400 in Hanoi, after SBV completes the licensing procedures. 
 
Our View – On the background of good macro economic indicators coming out in December and improved investor sentiments after seeing the Government’s determination to spur the economy being detailed into action plans, the stock market had a good run in the last month of 2012. We are cautiously optimistic and have started to mobilize cash into Vietnam Dong to be ready for deployment toward increasing equity level for the Fund. We are keen to buy stocks of strong companies with sound cash flow and healthy balance sheets in fundamental industries such as consumers and materials.

Filed under: Banking, Exchanges, News, Risk Management, Services, Vietnam, Wealth Management, , , , , , , , , , , ,

December 23, 2012 • 1:17 am 0

VAM: Vietnam Market Analysis – November 2012

Whilst SBV is still struggling to tackle bad debt, additional banking scandal has fanned market concerns about banking system instability
Coming as another shock that made the market drop 3.27% in one day was the resignation of Mr. Dang Van Thanh as Chairman of Sacombank following his wife’s resignation from Sugar Bourbon Tay Ninh. Though there are many rumors spread around this news, the market is looking at it as uncertainty still exists in the banking system. Fortunately, depositors’ reaction seemed to be calmer this time as there was no sign of “bank run” after the resignation. In the meantime, decision on the SBV’s initiative in setting up company to own and manage bad debt for banks has not been reached.
 
Stability continues to be the priority for next year
The government ended the National Assembly meeting with a good showing of strong determination to restructure the banking system at the lowest cost possible, and preventing any systemic collapse. Since the peak in August last year, inflation has been successfully controlled, at the cost of slowest GDP growth in 13 years. The national CPI growth rate posted a modest increase of 0.47% M-o-M in November, a deceleration from 0.85% in the last month and 2.2% in September when one-off adjustments were made to pharmaceutical and health care items. The government forecasts that 2012 CPI would be around 7.5% Y-o-Y and a decade low target of 6% is set for next year as well.
 
Lower inflation adding pressure on rate cuts
Lower expected FY2012 inflation of 7.5% and healthy liquidity condition of lenders are adding more pressure on rate cuts. By Nov 20, total deposit also increased 15.98% YTD while credit growth including trust investment and corporate bond investment was only 4.15% YTD. Banks now turn to bonds to put excess cash to work, which consequently causes the yield to drop. Under this circumstance, the Government has made known their contemplation of cutting deposit rate or putting a ceiling for lending, with a view to creating better environment to spur economy in 2013. The Government expects the economy will expand at 5.5% next year.
 
Dong confidence is strengthened
Despite the gloomy condition, FDI sector is doing well. Foreign companies’ export turnover rose 30% in eleven months through November, accounting for about two-thirds of total exports. The YTD FDI disbursement has reached USD9.9bn up to November 2012. This amount was down just slightly from USD10.05bn in 11M2011. The negligible decline showed that the foreign capital flow into Vietnam was still stable, helping the balance of payment to remain in surplus this year. The YTD trade balance is also a surplus despite a small deficit in November. And it is likely that Vietnam will record the first year of trade surplus since 1995. The deficit if any, will be lower than USD1bn. The export gains have reinforced Vietnam’s foreign-exchange reserves, expected to reach the equivalent of about 12 weeks of imports by the end of the year, which in turn would support the value of Dong.
 
PMI data signals recovery
The seasonally adjusted HSBC Vietnam Manufacturing PMI posted an increment to 50.5 from 48.7, which is above the neutral 50.0 value for the first time since September 2011. Although the index showed only a marginal improvement, it reflected returns to growth in both production levels and new orders during November. The increase in November’s PMI underscores optimism the economy is recovering after 14 month slowdown, which is in line with the situation in China and U.S. 
 
All three indices moved lower over November with low liquidity
The Vn-Index closed at 377.82, losing 2.64%. The HN exchange tumbled 3.36% to 51.05, whilst the VN30 dropped 3.19% to 443.68.
 
Our View – We are hopeful that the worst may be over. The market is waiting for clearer signs of economic turnaround while the Government is showing its determination in solving its problems. The trade-off between stable economy and growth requires consistency in policy setting. The stability of Dong and low inflation target level next year make Vietnam’s business environment more attractive. Fortunately, on the bottom-out journey, Vietnam would be helped by the data signaling a recovery in U.S. and China.

Filed under: News, Risk Management, Vietnam, , , , , , , , ,

November 18, 2012 • 1:59 am 0

VAM: Vietnam Market Analysis – October 2012

Another down month for the 2 main bourses

Read detailed VAM monthly  Monthly Market Analysis and Chart October 2012

The month of October saw the VN index close at 388.2, losing 0.47% whilst the HNX index fell 4.42% to close at 53.02. The VN30 somehow managed to move the opposite direction, gaining 0.82% to close at 458.56 and was again the best performer of the 3 indices.
 
CPI slowed down as price increases for healthcare and education were nearly completed
The Consumer Price Index rose 0.8% MoM in October, after jumping 2.2% the previous month due to one-off price adjustments in two major government-controlled sectors. Consequently, the YTD inflation appeared to be calmer at 6.02% as the healthcare and pharmaceutical component of the CPI basket decelerated from 17.02% to 5.94% and the education component decelerated from 10.54% to 1.88%. Although pricing pressure from food and foodstuff is seasonally higher in the last quarter, we think the one-digit inflation target of FY2012 is likely to be met. In addition, there is positive news for inflation, as the Ministry of Industry and Trade announced that input price for electricity production has declined in the last three months, and no price adjustment would be scheduled in November.
 
PMI weakened in October
The seasonally adjusted HSBC Manufacturing PMI posted 48.7 in October, down from 49.2 in September. As such, the headline PMI has remained below the critical 50.0 mark for seven months running. Partly, stocks of purchases fell further in October, as the downturn in the manufacturing sector led companies to empty out their inventory holdings. A number of firms also linked lower stocks to reduced levels of input purchasing. Weaker global demand led to a further solid reduction in new export business during October as well. Incoming new export orders have fallen in each of the past six months; subsequently, the latest decline in new export orders was the steepest in the 19-month survey history. In which, companies reported reduced inflows of new business from China, Japan and Taiwan.
 
SBV serious in solving bad debt
According to the latest SBV estimates, the level of NPLs at the end of June stood at 8.82%, which is even higher than that at the end of March (8.6%). As such, the SBV has submitted a proposal to the Prime Minister to set up an asset management company to take over the VND100 trillion (US$6 billion) worth of bad debt. Two options are: (i) to expand the role of the existing Debt Asset Trading Company under the MoF, or (ii) to set up an entirely new entity under the SBV. However it will take time to make any proposal a reality as it will need National Assembly approval which will push it to Q2 2013 at the earliest. In the meantime, banks are required to revalue their loan collaterals, and we believe this process will weigh down financial performance of lenders in the upcoming period.
 
Deadline for closing gold position extended to 30th June, 2013
After declaring the widened gap between domestic and world gold prices is primarily due to banks rushing to cover their gold positions before 25th Nov, SBV has extended the deadline to 30th June, 2013. Total gold mobilization until the new deadline must not exceed the gold needed to settle gold accounts. Since there are still 20 tons of gold needed to repay depositors and banks are not allowed to import gold, the extended deadline is meant to ease pressure on domestic gold price and help banks avoid sizable losses that would occur if they were to buy gold at peak price just to meet the deadline on 25th Nov.
 
Budget deficit in 10M2012 exceeds the whole year target
The YTD budget deficit in October rose to VND155.2 trillion from VND138 trillion last month, exceeding the VND140 trillion full-year target. As of 31st Oct, total tax revenue amounted to VND523.4 trillion, equivalent to 71% of the yearly plan. On the other hand, government spending approached VND 678.6 trillion, or 75% of the yearly plan. The budget deficit equals to 6.9% of GDP, far higher than the target of 4.8%-4.9% for the year, suggesting that room for fiscal policy to stimulate domestic growth is quite limited.
 
Trade balances returned to deficit in October. FDI disbursement unchanged year on year
The trade deficit is USD 500 million in October as imports increased 12% MoM to US$10.4 billion, whilst exports only increased 4% MoM to US$9.9 billion. With a large deficit in October, the trade balance has returned to deficit of US$357 million from a surplus of US$143 million in September. Since demand for import tends to be seasonally high in the last two months of the year, we think the trade balance by year end will likely be a larger deficit. However, the news that FDI disbursement in October reached US$900 million, unchanged year-on-year has provided some comfort that foreign investors still see investment opportunities in Vietnam. In fact, it is heart-warming that the FDI disbursement year to date (US$9 billion) has almost tracked the level achieved over the same period last year (US$9.1 billion), despite tougher economic conditions.
 
Our View – Our view has hardly changed since last month. As Vietnam’s top leaders are debating on critical issues including proposed amendments to the Constitution and several laws, we see little clarity on the economy or stock market until all that is settled. As such, we prefer to be conservative at this time, holding high cash and only retaining our core equity holdings; companies with strong fundamentals which we have high conviction in and believe will stand the test of change. We take this opportunity to screen the market for resilient companies with little or no debt, strong market position, high growth potential, good cash flow and savvy management with integrity, for possible immediate action when the market turns.
Source: VAM, 16.11.2012

Filed under: News, Risk Management, Vietnam, , , , , , , , , , ,

October 18, 2012 • 10:06 pm 0

VAM: Vietnam Market Analysis – September 2012

Markets declined in September
September was characterized by sideways market movements for the VN-Index, with the largest gap between the month’s high and low being approximately only 15 points. Closing the month at 392.57, the index gave up 0.87% for the month. The Hanoi exchange moved quite differently – a near downward trajectory to close the month at 55.47, down 9.7%. The VN30′s performance more closely resembled the VN-Index, with only narrow swings during the month, to close at 456.48, down 1.89% from August.
 
Market reacted to ACB resignations as developments troubled investors
In an unexpected announcement, ACB accepted the resignation of its BOD Chairman and two Vice Chairmen, this month. The resignations were initially claimed to be for personal and health reasons, yet were later announced to be connected to the arrest of ACB’s founder and the former CEO for economic violations (one of which being permission granted for approximately USD 34million to be deposited into competing banks at rates above the stipulated cap). A former BOD member of ACB, now on the Board of Eximbank, also resigned and is also to be prosecuted together with all the resigned ACB executives. Upon the dissemination of this information, the markets dropped, however only temporarily, as the news was widely expected.
 
Credit mobilization vastly exceeds credit growth
Credit growth from January to September 20, of this year, reached only 2.53%, much below the 8-10% target for 2012. While some banks have posted relatively high growth figures, such as BIDV and Military Commercial Jt Stock Bank, whose growth reached 13.5% and 10% respectively in the first 8 months; most of their credit growth however was for commercial bond lending. Removing commercial bond lending, loans outstanding to institutions and individuals decreased. In another example, VCB grew their credit 7.2% in the first 8 months, however savings growth was 13%. In efforts to ensure liquidity and being bound by the 9% deposit rate cap, many banks have begun to offer 13% interest for 13-month deposit terms. With dong lending rates now ranging between 13-15%, profits will come under pressure.
 
Health care and Education lead September’s CPI increase
In August, YoY inflation continued to abate to 5.04%, this month however, inflation rose to 6.48% YoY. September’s CPI rose 2.2% MoM, the highest MoM increase since May 2011. The increase is largely due to Healthcare, pharmaceutical items (17.02% increase), Education items (10.54% increase), and Transport and Telecoms (3.83%) increases. While Education’s increase was mostly due to seasonal factors, a series of rising petroleum prices played a notable role in the increase of one-off items.
 
GDP in first 9 months grew 4.73% over same period 2011
2012′s GDP growth is now expected to be 5.2%, thus requiring Q4 growth rate of 6.6%  fairly optimistic as Q3 growth was 5.35% and Q4, 2011 growth reached only 5.98%. GDP has however, been steadily improving from Q1 and Q2. Low credit growth, declining exports and slow retail sales, combine to make up slow domestic growth. Export value declined an estimated 5.8% in September, according to GSO; however, import value also dropped 4.4%, bringing the Q3 trade balance to a USD 531 million surplus. Retail revenue growth in September increased 1.08% for the month, improved over the 0.7% growth recorded in August.  For the first 9 months of 2012, nominal retail sales growth was 17% however; it reached only 6.4% in real terms. The Index of Industrial production also showed some signs of improvement, increasing 4.5% on month with increases in the manufacturing index being the largest contributor to the improved index.
   
FDI disbursement level paces 2011′s levels
Vietnam attracted approximately 73% of 2011′s January – September FDI, for a total of USD 9.52 billion. While overall attraction had declined, FDI disbursed reached USD8.1 billion, totaling 98.8% of YoY’s disbursed FDI. The Foreign Investment Agency expects disbursed FDI to reach USD 10 billion by year-end. Strong FDI disbursements have bolstered the FX reserves nearly USD 23 billion and contributed to S&P’s upgraded economic outlook and Fitch Rating’s affirmed B+ status of the dong.
 
Moody’s adjust government bond rating on banking sector weakness
At nearly the month’s end, Moody’s Investors Service downgraded Vietnam’s credit rating one notch to B2, with a stable outlook. At cause for the downgrade are the country’s banks and the risk that the government will need to partially recapitalize them given the lack of private sector solutions. The rating agency also downgraded all 8 of the Vietnamese banks it assesses due to deteriorating asset quality and profitability pressure.
 
Our View – With uncertainty regarding economic and banking reform still lingering around, we prefer to be conservative at this time, holding high cash and only retaining our core equity holdings; companies which we have high conviction in and believe will stand the test of change.
We take this opportunity to do our homework well, combing the market carefully for resilient companies with little or no debt, strong growth potential, good cash flow and earnest management. Although valuations of certain companies and sectors have become quite attractive, we are not rushing in just yet. Too much change is happening or expected to be happening. So we need a little more certainty before getting back into the market.

Source: VAM Vietnam Asset Management, 15.10.2012

Filed under: Asia, Banking, Exchanges, News, Risk Management, Vietnam, , , , , , , ,

September 20, 2012 • 6:37 am 0

VAM: Vietnam Market Analysis- August 2012

Markets declined in August
In August, the market’s ascent topped above the 437 level, but on the 21st of the month the market began a six trading day descent to a low of 385.78. After making a slight correction in the final days of the month, the VN-index closed at 396.02, losing 4.5% over the month. The Hanoi exchange faired significantly worse, closing the month at 61.43, to lose 11.2%, while the VN30 gave up 5.4% to close at 465.29.
 
Markets reacted to news and rumors, presenting some good buying opportunities
Upsetting market activity this month was the arrest of a key figure in the banking system and Vietnam football, for alleged illegal business activities in his 3 private companies. Days later, the arrest of ACB’s CEO for “economic violations” caused the SBV to add VND 23.31 trillion in liquidity to the banking sector to support the market and help ACB as its customers rushed to withdraw funds. Rumors of Masan Group’s Chairman’s arrest, while unfounded, added to the turmoil the market was undergoing as investors wondered who’s next and what are the repercussions. Also adding to market jitters was talk of a 3rd petroleum price hike of the month, for a total increase of 15% in 40 days. As sellers outnumbered buyers, the market lost USD 3.85 billion in 3 days, providing a buying opportunity which foreign investors rushed to take advantage of. 
 
Credit growth to remain at 6-8% for 2012, notwithstanding ceiling increased for some
23 of the nation’s 62 credit institutions applied to have credit growth ceilings increased, of which 10 were approved. The increased target encourages banks to spur lending to struggling enterprises dealing with high inventories and low demand. Considering growth in the first 8 months is a meagre 2%, the entire banking sector credit growth is expected to remain at 6-8% for 2012, according to the Central bank.
 
Deflation fears allayed as Inflation rises
Having recorded two consecutive month of negative inflation, deflation was concerning to some. In August however, CPI rose 0.63%, contributed by petroleum price hikes, along with increases in healthcare and pharmaceutical items, which registered the largest increase of 5.44% MoM. Despite August’s increase, inflation continues to slow from its peak of 23% in 2011 to 5.04% YoY.
 
Trade balance reflects increased demand
Reflecting increasing demand, internal and external, the positive trade balance once again turned negative for the first time in 3 months. August’s trade deficit of USD150million, combined with an average monthly export revenue increase of 17.8% YoY for the January to August period, suggests that easing of monetary policy may be reversing domestic contraction. At the same time though, an ICAEW report forecasts GDP growth for 2012 to be only 5.1%.
 
FDI disbursement level paces 2011′s levels
Vietnam attracted 66.1% of total 2011 FDI, for a total of USD 8.47 billion in the first 8 months of the year.  While overall attraction had declined, FDI disbursed reached USD 7.28 billion, totaling 99.7% of 2011′s disbursed FDI. Strong FDI disbursements have bolstered the FX reserves to nearly USD 20 billion and contributed to S&P’s upgraded economic outlook and Fitch Ratings’ affirmed B+ status of the dong.
 
Our View – While the circulated rumors, both founded and unfounded, created some turmoil in the market, investor reaction was more sentiment driven rather than fundamentals driven, and as such, a buying opportunity was presented. The chain of events in August suggests that uncertainty still remains; however, we can get comfort that given some of the encouraging economic signs lately, it is probably that the eased monetary policies have begun to stimulate domestic demand. We continue to shy away from property and related sectors but are selectively adding stocks in basic industries such as Materials, Utilities and Consumers.

Source: VAM Vietnam Asset Management, 20.09.2012

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July 18, 2012 • 4:56 am 0

VAM: Vietnam Equity Market – June 2012

Another month of closing down for both markets
Read detailed VAM monthly Market Analysis for June 2012
In June, the VN- index lost 1.6% to close at 422.37. The HNX declined 4% to 71.07, while the VN-30 broke below the 500 threshold to close at 497.73, down 1.85%. Liquidity also dropped with average daily trading value recorded at USD 73 mn versus USD 99 mn of May. Foreign investors turned net sellers with net selling value of USD 25 mn for the month.
 
CPI and Trade balance improved
Unseen since March 2009, CPI decreased 0.26% in June, bringing YoY and YTD inflation to 6.9% and 2.52%, respectively. 5 of the 11 commodity and services items in the CPI basket decreased, including Food & Foodstuff which make up nearly 40% of the total basket. Serving to keep inflation low was 2 reductions in the retail price of petrol (another reduction is forthcoming in early July). The World Bank has recently revised downward its official 2012 CPI forecast for Vietnam to 9.5%, while JP Morgan predicts inflation will top out at 8.1%. Also improved was the nation’s trade account. With June’s trade deficit at USD 150mn, 1H trade balance came to a deficit of USD 357mn – significantly improved over the USD 6.5bn deficit in the same period of 2011. For 1H, Exports grew 22% YoY while Imports increased at 6.9%.
 
Disbursed FDI slightly improves, while committed FDI disappoints
Committed FDI disappointed in 1H, decreasing 27.3% to USD 6.4 bn, down from the USD 8.8 bn recorded in 1H 2011. However, disbursed FDI increased 1.9% to reach USD 5.4 bn, notably better than the 1.9% decrease recorded in the same period in 2011. Japanese investors continue to be the largest contributor with 65% of the nation’s total FDI.
 
Retail Sales continues growth albeit at a slower pace
Retail sales in 1H also disappointed, growing 6.5% in real terms (19.5% in nominal terms) to approximately USD 54.6bn. While retail sales growth remains positive, it is lower than the 9.2% recorded in 1H 2011. High interest rates and stagnant production were to blame for declining YoY sales.
 
Lower remittances pressure the dong
Inward remittances to HCMC in 1H totaled about USD 1.9bn, 20.8% lower from the same period in 2011. With a dormant property market and the global economic slowdown, remittances are down nearly USD 500mn. In 2011, the 9bn dollar remittances were major contributor to the USD 2.5bn BOP surplus. Lower remittances have put some pressure on the currency. During the month, there was time when the dong traded as low as VND 21,036 per USD. The dong has since regained ground and the central bank reference rate continues to be VND 20,828, unchanged since December 2011.
 
As economy slows, further stimulus announced
While Q2 GDP growth bettered Q1 growth at 4.66% and 4% respectively, the annual 6-6.5% growth target appeared unlikely to be achieved and accordingly, was reduced to 6%. With weak Q2 earnings outlook and credit growth likely to only reach 12-13%, missing the 15-17% growth target, parts of a VND 29 trillion fiscal stimulus package in Circular 21 were enacted. Stimulus measures include a 30% reduction in the corporate income tax for SMEs; a 6 month tax exemptions for individuals earning less than VND 9 million per month; dividend tax exemption, and a 50% reduction on securities sales tax. In addition, the refinance and discount rates were each reduced by 100bp to 10% and 8% respectively. The deposit rate cap for deposits greater than 12 months was lifted, and is now 9% for deposits under 12 months.
Additionally, in an effort to boost GDP and revitalize the Property sector, an un-utilized fund of VND 120 trillion in public investments is also being disbursed. Moreover, the Property sector was also given ‘preferred group’ status, thereby giving them much needed access to lower cost borrowing.
 
Our View – With some improvements and some weakening in the macro picture, on a net basis overall, we dont think much progress has been made since last month. The stock market reflected that with a 1.6% fall to end the month of June at an almost 3-month low.
 
On the corporate front, the situation looks bleak with PMI (published by HSBC) down to 46.6 from 48.3 in May. What is more troubling is that output prices declined sharply while finished goods inventories have increased. This shows that despite falling prices, demand is still very weak and the inventory clearance process might take longer than we thought.
 
We therefore remain cautious on the market and will prefer to stick to defensive plays and domestic-oriented companies with strong cash flow, solid financials, strong growth prospect, and good corporate governance and cheap valuation.
Source: VAM Vietnam Asset Management, 18.07.2012

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May 17, 2012 • 6:55 am 0

VAM: Vietnam Market Analysis April 2012

Market Update – Read detailed  VAM Market Analysis  April 2012.

Both exchanges closed up for the month

Both markets and all three indices ended higher this month. The VN-Index closed at 473.77, up 7.4%; the HASTC closed at 79.86, up 10.6%, while the VN-30 closed at 541.20, gaining 8.2% for the month.

Year-to-date, the VN-Index continues to be one of the best performing markets worldwide, gaining 40.41% this year.

 CPI for the month lowest in 5 years

April CPI came in at 0.05%, the lowest month increase in the past 5 years. Decrease in Food and Foodstuff (making up over 32% of the index) helped offset the increase of school fees and March’s petrol price. However, May’s inflation figures should see a slight increase due to April’s petrol price increase and May’s basic salary hikes. In addition, the government’s recent approval of coal price increase makes threats of electricity price hikes loom larger in May. If realized, it will definitely have further unfavorable impact on the month’s CPI.

 April’s trade figures back in deficit

The trade surplus of USD 224mn recorded in Quarter 1 was rather short lived, as April’s trade figures show exports exceeded imports to the tune of USD 400mn. This brings the YTD trade account back into a deficit position of nearly USD 180mn. At cause for the reduced export values in April were the difficulties exporters faced with both the market and with prices. Among the declines in exports were coffee (25% decrease), textile and garments (7.3% decrease) and seafood (7.4% decrease).

 Deposit interest rates brought down to 12%

Following on the 1% rate cut in March, rates on all term deposits were again reduced 1% in early April, bringing the maximum deposit interest rates permitted to 12%. Refinancing rates are set at 13% p.a. while the discount rate is 11% p.a. Lower financing rates reduce the liquidity pressure on banks, thereby reducing the threat of increasing NPL’s.

 NPL ratios increase across all banking groups

In the division of banks into 4 groups, Group 1 being the best banks, Group 4 being the worst, the issues of NPLs have become clearer as NPLs have increased across all groups, which also include some state owned banks that are considered to be adhering to the safe lending procedures.

 Gold import & export rules to change May 2, 2012

Gold ownership will remain legal but trading, importing/exporting without a permit will not be permitted after May 2. The government is also to maintain a monopoly over future bullion production. Gold as a form of payment will also not be permitted. The rationale behind this decision is to further discourage USD demand and soften gold imports.

 Shift towards growth

The government has announced several measures to boost domestic growth, including (i) reclassification of non-productive loans which gives banks more room in lending real estate sector; (ii) SBV’s Document 2506 which asks financial institutions to work with borrowers to reach more favorable terms for borrowers’ existing loans. These measures are expected to bring assistance to struggling businesses.

Aiming to develop an economy where savings are channeled into productive investments, the Prime Minister approved New Financial Strategy, few initiatives of which, stretching to the year 2020, are: limits on government debt guarantees, limits on budget deficits, and a targeted savings rate of 33.5-35% (currently at 25%).The MoF is also considering other measures to support businesses, namely reductions in VAT, reduction or even elimination of Personal and Corporate Incomes taxes.

 Foreign reserves up, as dong remains stable

The dong continues to be stable, trading at 20,828 VND per USD while foreign exchange reserves also seem to be fairing well. The SBV did not provide exact figures but stated that reserves now approach 9 weeks of imports. Thus it can be estimated that reserves range between USD 19-20bn, approximately 25% higher than the end of 2011.

 Our View – As the AGM season is coming to an end, we observe that most companies suffered heavily from the 2011 global and domestic economic downturn, with Real Estate, Construction, Construction Materials and Transportation sectors getting hit the most as a result  of high interest cost, lack of available credit, frozen property market and increasing oil price. Against this gloomy picture, selective Financials and Export companies became the rare bright sparks when they announced strong earnings growth, having benefited from an opportunistically large interest spread during the year, and weaker VND against the USD, respectively. As a defensive sector, Food & Beverage held up steadily through the storm with most companies showing resilient bottom lines.

We believe that monetary policy starts to have positive impact on the economy. Looking forward, we think that with improving macro economic factors and new tax subsidies, companies with good governance and efficient management will gain further success. We continue to like F&B, Banks, Oil & Gas and are starting to go back into Property and Construction Materials.

Source: VAM, 16.05.2012

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June 15, 2011 • 11:28 pm 0

VAM: Vietnam Market Analysis May 2011

Interest rates the highlight of the month
With the aim of controlling inflation, the SBV tightened money supply, thereby increasing interest rates. Market interest rates are now averaging 19.86% for short term borrowing, and if including fees (which banks apply to get around the lending rate cap) the effective borrowing costs increased to 23%. On the other hand, the US$ cost of borrowing (approximately 3%) and the rate paid by SOEs is actually negative in real terms, due to a two-tier lending rate. Rates at these prohibitive levels in the private sector threaten to choke off any growth for the year; despite this, another 100 bps interest rate hike for the year is still a possibility.
 
Following Aprils introduction of USD-denominated deposit cap of 3% for individuals, domestic residents attracted by the large gap between USD and VDN deposit rates, opted to keep fewer dollar deposits, thereby contributing to 2.89% MoM decline in USD-denominated deposits. VND-denominated deposits increased by 1.27%. No slowdown in credit growth, as seen by M2 levels, is yet visible. With credit growth reaching 6.5% year-to-date (as of April), the annual target credit growth rate of 16  18% will likely be overshot. The SBV lifted Open Market Operations repo rates 100 bps to 15%, thus sending a message that tight monetary conditions will remain.
 
Inflation still very much a concern
Nationwide CPI rose 2.21% MoM (2.1% when seasonally adjusted) with the first five months of 2011 reaching 12.07%. Inflation in May continued to accelerate, approaching levels not seen since 2008 with no signs of easing. Three months into a shift in focus from growth to curbing inflation, monetary authorities have used both fiscal and monetary tools, tightening aggressively, yet little impact is invisible. Seasonally adjusted food prices were up 3% MoM in May, following a 3.8% increase in April. Prices in food and energy related items were most noticeably up, however, it should be noted that this was aided by double digit hikes in electricity and fuel prices in late February and later March. It is likely that inflation will surpass 20% in the coming months and further monetary tightening is to be expected.
 
Stability in the dong continues
Stability in the VND/USD exchange rate continued into the month of May. With the dong appreciating about 0.43% over the previous month, banks appear to have sufficient USD dollar supplies to meet importers needs. Although exact figures are difficult to come by, recent media reports have quoted a government minister as saying that reserves stood at $10bn (the equivalent to about 6 weeks of imports) in December 2010. Towards the end of May, the central bank announced that it has purchased USD 1.2bn with the aim of increasing international reserves. In this quest, the SBV outbid the market by 40  50 dong, to VND 20,600 per USD, indicating it exercises caution while added to reserves by striving to avoid furthering inflation through increased liquidity. 
 
Domestic indicators continued to show positive signals
Domestic indicators such as growth in exports and imports both continued to show increases for the month however, growth came at a decreasing pace than in April. Exports and imports, increased at 5.7% and 2.7% respectively for May. While Mays trade deficit came to US$1.7bn, the highest in 18 months, the drop in commodity export growth rates was a contributing factor. Domestic consumption remains strong with industrial production expanding by 14.4% YoY and retail sales growing by 23.7% YoY, FDI, overseas remittances and aid money remain important sources of exchange for Vietnam to offset its trade deficit. FDI figures for the first 5 months of the year totaled $4.7bn, or about 23.5% of the years target.
 
Equity markets 
Starting the month after a long holiday weekend, the VN-Index opened at 483.3 points and ended the month at 421.37, representing a 12.23% loss MoM. The VN-Index even plummeted to 386.36 points on 23 May 2011, its lowest level since 2009. May also saw dramatic downward trend in trading volume anda squeeze on liquidity on both bourses. Trading values for both bourses fell for yet another month, dropping to $27 million in May, down from $62 million and $42 million in March and April, respectively.
 
The massive sell-off from retail and even institutional investors resulted from investors low confidence which in turn was caused by the upward revision of inflation forecast and “persistently high interest rate”. Moreover, news about the banks deadline to reduce real-estate and non production loans to below 20% of total loans also ignited fears of margin calls and forced selling to recover bad debts on the banks part, leading to a 10 consecutive bear sessions on the market in spite of a strong rebound after hitting the record 2 year low bottom. Further contributing to downward pressure was many investors needing to meet margin calls by liquidating holdings at limit down prices in a period of low liquidity. The trading band further fueled negative sentiment by preventing the market from finding its true equilibrium.
 
Rounding out the month, the market saw an upturn with several large caps closing limit up. Many investors are abstaining from the market, choosing instead bank fixed term deposits as high bank interest rates provide a profitable, safe alternative.
 
To better reflect the true sentiment in the market, a senior official has called for the introduction of new indices. While the composition of the indices is yet to be determined, suggestions range from top 30 or top 50 large-market cap companies or dividing the market into business sectors. The poor equity market performance shows macroeconomic factors continue to impede recovery and outlook remains bearish.
 
Our View – We believe the market will continue to fluctuate within the wider range of the trading band in the short-term as investors key concerns, namely double-digit inflation and trade deficit are still prevalent. Economic recovery seems a distant prospect, and investors prefer the high fixed deposit rate to equity at this time. However, in term of valuations, we think Vietnamese equities are currently priced more cheaply than those of other regional markets.
 
In response to poor market sentiment, the Ministry of Finance recently announced their support to recover the equity market by allowing (1) investors to use more than one brokers; and (2) buying and selling the same securities within a trading day provided that investors securities for sales are available in their depository accounts, with effect from 1st August 2011. This news is considered good catalyst to regain the capital inflow into the system despite the current market instability. For investors with a medium- to long-term outlook, the current poor market is a great opportunity to increase their equity holdings at cheap valuations.  We maintain our picks of telecommunication, consumers and energy sectors with focus on strong fundamental resilient companies with little or no debts as most companies in the other industries are struggling hard with the high-interest rate environment.
Source:VAM, 14.06.2011

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May 5, 2011 • 12:39 pm 0

VAM: Vietnam Market Analysis April 2011

Inflation continued to be headline of the month             VAM Monthly Newsletter – April ’11.
Despite the governments increasing efforts in the last several weeks, April CPI came out up by 3.3% MoM and 17.5% YoY, the highest since December 2008 and far exceeding most expectations. This brought CPI growth YTD to 9.64%. Estimates are pointing to 16-18% for 2011 while the governments revised target is to keep 2011 CPI growth not higher than that of 2010, i.e. at 11.75%. Promptly, the central bank reacted by raising two policy rates by 100 basis points on 29 April (increasing refinance rate and discount rate to 14% and 13% per annum, respectively).
 
However, it seems a series of policy rates hikes applied one after another by the central bank in March and April have been insufficiently effective to balance major adverse impacts on inflation, such as large price hikes of local necessity commodities (electricity, fuel, coal), escalating food prices, high interest rates and prolonged global commodity price uptrend. With more fuel price hikes imminent to close the domestic and international price gap and governments decision to adjust electricity price further (likely up by 40%), effective this June we think CPI might not have peaked for this year yet.
 
Credit tightening will remain probably through Q3
Given ongoing inflationary pressures, interest rates will not come down in the coming months. And the government has repeatedly sent clear signals that they will sacrifice a small growth to contain inflation. GDP growth target for this year was revised down to 6-6.2% from 6.5-7% previously. Local banks have been ordered to reduce credit to non-production purposes to 16% by year-end, and a failure in doing that will possibly result in doubling of reserve requirements (currently between 1-3%). This means loans for sectors like real estate, securities investment and consumption are going to be cut back.
 
This time, the government has shown a strong determination that they will not prematurely halt the tightening policy as they did in the past. We would expect further tightening on credit and public spending if inflation is not going to improve. Hence, we think inflation will eventually be put in check, but it will take more time. Observers are expecting to see improvement in inflation toward the end of Q3 when governments measures have taken clearer effects.
 
Stability in foreign exchange market was a bright spot in macro picture
Improving stability of the FX market in April was the fruit of a set of governments measures to restore confidence in the currency and gradually minimize dollarization of the economy, an ingrained problem and a culprit for FX instability. According to Asian Development Banks Vietnam Director, dollars make up about 20% of money used in Vietnam. After the central bank applied dollar deposit cap in April (1% per annum for institutional depositors and 3% per annum for individuals vs. popular 14% deposit rate in dong terms), dollar hoarding has been visibly discouraged. A big commercial bank in Ho Chi Minh city said recently that they bought U$15 million per week compared to U$1-2 million previously, mainly from the public.
 
Toward month end, the dong appreciated against the dollar by 7% in the unofficial market and 3% in the interbank market from its lowest level in February. Encouraged by initial results toward de-dollarization, the government is considering measures against goldenization of the economy, the other ingrained problem on the FX front. A deadline to stop gold deposit and lending activities at banks are expected to be released soon. With all these factors, we think the stability of the FX market will continue through the year.
 
Domestic indicators continued to show positive signals
Apart from inflation, other domestic indicators continued to show positive signals. In the first four months, industrial production value and retail sales expanded respectively by 14.2% and 22.7% on-year. Both exports and imports registered significant growth of 35.7% and 29.1% on-year respectively. However, trade deficit is not getting improved. With March number being revised up to U$1.4 billion from U$1.15 billion and trade deficit in April estimated at U$1.4 billion, year-to-date number stood at U$4.8 billion versus U$4.6 billion in the same period last year. The slight increase in trade deficit was mainly attributable to rising global commodity prices.
 
With regard to capital inflows, though committed FDI year-to-date showed a decline of 50% YoY, disbursed FDI was still up by 0.6% YoY, estimated at U$3.62 billion. Disbursed ODA in the same period was recorded at U$404 million, fulfilling 16.8% of full-year target. Overseas remittances this year are forecast to be affected by the dollar deposit rate cap, but real effects remain to be seen.
 
Equity market saw a modest rebound though at low volume
CPI in April seemed not to create much impact on local investors sentiment as the market did rebound, though at low volume, after the news came out. The explanation was that the CPI number had been largely priced in. Investors are now looking to CPI in May. The further tightening measures have certainly affected the market. The VN-Index closed the month at 480.08 points, up 4.1% MoM with low liquidity. Average daily trading value combined on both bourses dropped to U$42 million versus U$62 million in March. However, as stock valuation is at historically low level, foreign investors have significantly increased stocks accumulation during the month with net purchase of U$43.3 million versus U$9.1 in March, mainly on the HOSE.
 
Our View – The AGM season has almost come to an end and the overall picture of revenue and profit growth targets for 2011 has been rather unexciting. A large number of listed firms operating in real estate, manufacturing, and some other sectors saw a tumble in the year-end results and even unimpressive performance in the first quarter of this year, resulting from rising cost of capital and accelerating prices of material inputs. As a result, 2011 business plans were set at very conservative levels compared to last year. In contrast, listed banks, especially big ones, still announced strong profit numbers for 2010 and set plan for quite ambitious profit targets for 2011 regardless of tougher regulatory requirements and volatility in the capital markets.
 
Generally speaking, since the government keeps emphasizing their priority to curb inflation rather than push GDP growth, we believe the lending interest rate will likely not come down, at least till the end of Q3/2011, which will then create more burdens on businesses operations. Therefore, we see no major positive catalyst to lift the stock market up in short-term. However, in a medium to long-term, we expect tightened monetary policies and fiscal policies will soon have actual impacts to damp inflationary pressure this year and stabilize the market. Additionally, share price plummeting to the low level could be seen as good opportunities to acquire stocks at cheap price. In fact, an active net buying of U$43.3 million from foreign investors in April can be considered positive signs of regaining investors confidence in the coming time.
 
At the moment, we think companies with more cash, low debts and good business strategies in lines with global markets demand will continue to show resilience through tough times. As such, we uphold our interests in stocks of telecommunication, dairy, rubber and petroleum sectors. We also watch with interest the banks performances, which were generally quite impressive in the first quarter of 2011, despite unfavorable macroeconomic conditions.
Source: VAM, 05.05.2011

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January 11, 2011 • 10:46 pm 0

VAM: Vietnam Market Analysis December 2010

Market Update - Vietnam ended 2010 with a remarkable GDP growth of 7.34% in the last quarter, bringing the full year growth to 6.78% versus last years number of 5.32%. The resilient economic recovery was driven by domestic factors such as industrial production and retail sales, both significantly up 14% and 24.5% on year, respectively. On the external front, exports had a good year with revenue reaching US$71.6 billion, up 25.5% compared to 2009, whilst import turnover was up 20% in the same period, recorded at US$84 billion. This brought the full year trade deficit to S$12.4 billion, accounting for 17.3% of the total export revenue, well below the government target of 20%. VAM Monthly Newsletter – December 10

The deficit in the current account would be sufficiently financed by stable capital inflows, namely (i) FDI and ODA disbursement of US$11 billion and US$3.5 billion, respectively; (ii) overseas remittances of US$8 billion; and (iii) foreign indirect investments (FII) of US$1 billion. However, macroeconomic instability and the ratings downgrades by Fitch in June and by Moody and Standard & Poor in December cast gloom over the countrys economic achievement. Reasons cited by the rating agencies such as accelerating inflation, worrying balance of payments (BoP), weakening currency,… are also major concerns to market participants as well as policy-makers.

Inflation had been under well control from March to August, then suddenly picked up from September to December, finishing the year up 11.75% compared to end 2009. This number far exceeded the government target of 8% for 2010. The soaring inflation was mainly attributed to the governments loosening monetary policy in the second half of the year to support economic growth and raising global commodity prices. Inflation would likely continue through 1Q2011 due to high festive season consumption, and we would expect it to gradually come down from 2Q2011 if the governments tightening monetary policies are to be effectively applied.

Despite that the trade deficit would be offset by the capital inflows, Vietnams overall balance of payments still had a deficit of US$4 billion in 2010. This was an improvement from the BoP deficit of US$8.8 billion in 2009, but still put pressure on the Vietnam dong. It is noteworthy that the volatility in the FX market in the last months was additionally caused by other factors like strong local gold price hikes, high inflation leading to weakening confidence in the dong, peoples hoarding dollars and gold as a way of storing their assets.

However, the downward pressure on the dong has been considerably taken off thanks to a number of measures implemented by the government in 2H2010 such as raising the interest rates in dong terms, injecting dollars into the market, committing not to devaluate the dong until after Tet – Lunar New Year (February 2011). And the improving overseas remittances towards year end also helped cool down the FX market. Given the demand for dollars should be coming down after Tet, we would expect the FX market to get more stabilized from 2Q2011 as long as there will be no major event in the domestic and global economy.

The government has set major macroeconomic goals for 2011, specifically GDP growth of 7-7.5%; inflation of 7% or less; BoP to have a surplus of US$500 million, credit growth of 23%. It seems that the government puts more emphasis on stability and less on growth in 2011 when slowing down the credit growth to 23% in 2011 from 38% and 28% in 2009 and 2010, respectively. Most observers agree that the immediate priority for Vietnam now is inflation control. But with GDP growth target set at 7-7.5%, we think inflation would unlikely be kept at 7% or less. Some forecasts are pointing to the level of 8.5-9% for Vietnams inflation in 2011.

Vietnam stock markets had a disappointing year with the VN-Index closing the year at 484.66, down 2% on year and the Hanoi bourse even loosing 32% to close the year at 114.24. Average daily trading value combined on both bourses throughout the year was recorded at US$124 million. Foreign investors continued to be net buyers with new inflows into the market being estimated at US$1 billion in 2010, of which about US$700 million going to equity and the remaining going to fixed income.

Our View – 2010 was a disappointing year for Vietnam stock market. It underperformed most of its peer markets in the region. Despite showing a good recovery in GDP growth, the economy has been facing quite a number of challenges including rising inflation, high interest rates, weakening currency and prolonged trade deficit. Corporate with high leverage and high dependence on imported raw materials are facing constant pressure on margin. Consumer sector remains the bright and stable spot given the countrys strong and resilient domestic demand.
Going into 2011, we expect the market will continue to remain volatile until the current challenges in the economy can be skillfully managed. The bright note is that the market valuation has become increasingly attractive, especially when compared with regional peers. We are seeing many solid, well-managed companies trading at attractive valuation levels. We continue to favor the consumer, pharmaceutical, petroleum and natural resource, and IT-Telecommunication sectors. Banking is a very interesting sector to watch for a potential recovery play given its deep discounted valuation. Given the countrys strong GDP growth and favorable demography, property and building material sectors should also do well once interest rates start to come down.
Source:VAM, 11.01.2011

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December 8, 2010 • 10:36 pm 0

VAM: Vietnam Market Analysis November 2010

Market Update - November was characterized by mixed news flow. On the one hand, there were a couple of good macroeconomic developments, namely (i) the last quarter GDP growth expected at 7.24%, resulting in a full year growth of 6.7% versus 5.32% last year; (ii) capital inflows from disbursed foreign direct investment and official development assistance keeping improving; (iii) overseas remittances likely to reach US$ 7.2 billion in 2010 compared to US$ 6.6 billion in 2009; (iv) full year export growth expected to reach 23%, nearly quadrupling the governments earlier target of 6%, while imports growth will stay slower at 19% – 20%; (v) overall balance of payments expected to be $2 billion in deficit this year, down from last year’s deficit of $8.8 billion. VAM Monthly Newsletter – November ’10

On the other hand, ongoing accelerating inflation and volatile FX market continued to attract increasing concerns from policy makers as well as market participants. November CPI increased by 1.86% from October, marking the third consecutive MoM increase above 1% after six months being kept under this threshold. November number brought year-to-date figure to 9.58% and full year CPI is being forecasted to stand at 11-12%. The FX market, too, heated up during November, with the greenback being offered at 21,500 dong/dollar in the unofficial market at month end, 10.25% higher than the official ceiling band of 19,500 despite the governments announcement early in the month that it would allow the State Bank of Vietnam (SBV) to use the foreign reserves to inject dollars into the market and that the SBV had no plan to further depreciate the dong until the Lunar New Year (February 2011).

Strong rally in the local gold price in the past few months has been a major cause for the FX situation and panicky market sentiment. After the SBVs decision to allow gold import in early November, local gold prices started to cool down and got to around VND35.9 million per tael (local unit for gold, equivalent to about 1.2556 troy ounce) at the end of the month compared to its all time record high at VND38.2 million per tael at mid-November.

As GDP growth target for this year has been achieved, the governments focus now moves to curbing inflation and cooling the FX and gold markets to stabilise the macro environment. They implemented successive tightening monetary measures in November, such as (i) raising interest rates by 1% per annum (VND base interest rate to 9% p.a., refinancing interest rate to 9% p.a., discount rate to 7% p.a., and overnight rate to 9%); (ii) removing cap on both deposit and lending rates for banks. Toward month end, many banks increased the deposit rate for VND to 13-14% per year. Some smaller commercial banks even offered borrowing rates of 14.5-15% p.a. in an attempt to retaining their depositors and mobilising more capital for their increasing year-end lending demand. However, the desired effects on inflation of these tightening policies will be likely to be seen only from next year.
The VN-Index ended November at 451.59, down 1.5% on-month. During the month, we saw a divergence in the market trend, hitting the trough at mid month and then significantly picking up during the last week of the month. Additionally, the low average liquidity might indicate that retail investors were still cautious about the recovery of the equity market in the short-term.

Our View – We are not too bullish about the market in the short-term but equities have come down to the very attractive level. The negative macro situation has mostly been priced in so it might be a good time for investors to consider accumulating stocks. Nevertheless, we think the Government should be more transparent and proactive in implementing its monetary policy measures in order to restore investors confidence and to help the equity market sentiment.
We continue to like stocks in consumer staples, oil & gas, and materials. For a longer horizon we prefer materials, real estate and banking sectors. In this time of volatility, we recommend that our investors keep close tabs on macroeconomic developments for signs of recovery and stability before jumping in.
Source: VAM, 08.12.2010

Filed under: News, Vietnam, Wealth Management, , , , , , , , ,

November 8, 2010 • 10:27 pm 0

VAM: Vietnam Market Analysis October 2010

Market Update - October macro indicators showed Vietnams real economic growth was still on track. Industrial production and retail sales in the first ten months grew by 13.7% and 25.1% on-year, respectively. In the same period, export turnover was also up 23.3% on-year whilst imports were only up 20.7%. With the third consecutive downward revision to September deficit number from US$1.05 billion to US$875 million (after revisions made to July and August numbers), year-to-date trade deficit is standing at US$9.5 billion versus the government full year target of US$13-14 billion, signaling that trade deficit seemed to have stabilised. VAM Monthly Newsletter – October ’10

However, inflation and exchange rate remained major issues of the economy. October inflation came out at 1.05% on-month and 7.58% year-to-date, showing no clear sign of slowing down despite the governments increasing effort in consumer price control after the sudden acceleration of inflation in September. Given the coming months usually experience high seasonal inflation, made worse by the recent floods in central provinces which are considered worst for the past 60 years, consensus estimates are looking at 9-10% inflation for this year, well above the government target of 8%.

Another headline during the month was the rising divergence between official and unofficial exchange rates. At month end, gold shops were selling the greenback for 20,160 dong/dollar, 3.4% higher than rates offered by commercial banks. The ongoing dollar price rise in the free market was mainly attributable to strong increase in demand for dollars from i) importers to pay for purchases made in preparation for high year-end consumption; ii) businesses to pay back dollar loans due at year end; iii) businesses to import gold to re-sell in Vietnam to make arbitrage profit due to the difference in domestic and world gold prices; and iv) individuals increasing dollar and gold hoarding. Of these causes, the last one is considered the most challenging to deal with as hoarding dollars and gold has been a deep-rooted habit of storing assets by Vietnamese people, which always tend to intensify amidst a high inflation and volatile exchange rate scenario.

In an attempt to take downward pressure off the dong, on 29 October, the State Bank of Vietnam (SBV) issued Circular 22 that banned banks from selling gold deposited by customers and using the funds for loans or for converting into foreign currencies. However, the SBV was being expected to have stronger actions to regain peoples confidence in the dong. Some possible measures being mentioned offline included either a further devaluation of the dong toward year end, which was not in favor of policy makers, or the SBV injecting dollars into the market using the foreign reserves; removing cap on interest rates in dong term; etc. Taking all these factors into consideration, we would expect a tightening monetary policy from the government and the SBV in the coming months.

The VN-Index reacted against all these news with another month of sideways movement, ending October at 452.63, down just 0.4%.

Our View – We believe that the market is at a low point but will continue to go sideways in the short-term due to uncertainties over inflation and currency devaluation. 3Q2010 corporate earnings generally did not provide adequate support to the market and liquidity on both bourses has been quite low recently. We think investors are waiting for a clear signal of economic health improvement before pumping back money into the market. Despite the currently rather bearish sentiment, we note that the hot money flow from overseas is ready to come back to Vietnam any time as long as the market starts picking up.

Our list of favorite sectors for long-term investment still consists of consumers, IT-Telecom, fertilizer and pharmaceuticals. For short-tem trading plays, we maintain watch on certain stocks in commodities such as sugar, natural rubber and rice as well as some high-dividend yield stocks. Overall, we uphold our bottom-up approach and keep a close watch on the business performance of sound-fundamental firms as we think these stocks will be the first to recover once the macro economic picture stabilises.
Source: VAM, 08.11.2010

Filed under: News, Vietnam, , , , , , , ,

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