Market Focus
Asia Equity Strategy
ETF Strategy
Investment opportunities in Vietnam Refer to important disclosures at the end of this report
DBS Group Research Key investment theme Vietnam has been transformed from an inward looking country to one that is globalised, market-based, with a stable socio-political situation and is now among the world’s fastestgrowing economies. Not an emerging market yet under MSCI benchmark classification, Vietnam is currently the ninth-largest country weight in the iShares MSCI Frontier 100 ETF (FM), at 3.24%. Last year, Vietnam formed a commission to explore taking the necessary steps for the country to shed its frontier status and gain entry into the widely followed MSCI Emerging Markets Index. One hurdle Vietnam must clear before becoming a credible candidate for the emerging market upgrade is foreign ownership. The Prime Minister on Thursday ratified Decree 60/2015 to replace Decree 58, which included a long-awaited regulation on removing limits on foreign ownership in listed companies. Under the new decree, foreign stakes can be lifted up to 100% for most sectors. However, the limit on foreign stakes at banks will be retained at the existing level of 30%.
2 July 2015
Vietnam’s economy is expected to expand its GDP growth rate to 6.2% for 2015 and do better in 2016 with 6.5%, according to official forecasts.
Exports growth has been sluggish due to weak agricultural and commodity prices. But electronics exports has been the bright spot, growing 64% y-o-y in the first quarter.
The Vietnam dong is pegged to the USD. The State bank of Vietnam has already devalued its currency twice this year, by 1% each in January and May. This is to bring the currency in line with the regional currencies which have all depreciated against the USD.
Vietnam’s inflation continues to decline from its peak of 23% in August 2011 to 4% in 2014 and has further flattened to 2% in 2015, thanks to low global oil prices. There is room for monetary easing amid falling inflation.
Vietnam has a strong demographic profile. This has helped with the country's labour cost competitiveness and domestic demand. Sustained growth of disbursed FDI (foreign direct investment) signifies the country's attractiveness as a manufacturing hub. Its greatest asset is its educated, skilled human capital with its population of 90m and a young workforce, where 45% is under 30 years of age.
Policy challenges are underway to reform banks and state-owned enterprises and integrate the domestic firms into global supply chains and improve infrastructure.
The country’s biggest challenge is the management of its public debt which is approaching 65% of GDP. The debt is unsustainable with long-term projects being financed by short-term loans.
In the roadmap to liquidation of state enterprises, about 340 SOEs will be liquidated from 2015-2017 and with estimated auction value of US$25bn.
The new decree will not only have a huge, positive impact on the development of the securities market but also accelerate the privatisation process that the government is determined to hasten drastically and efficiently.
Market highlights
Vietnam has a market capitalisation of 1,086tn dong (US$44.5bn) and its GDP stands at US$171.4bn, which equals 0.26x of GDP, making it a clear investment destination. Currently there are 31 out of 303 listed companies where foreigners are allowed to invest. These account for about 30% of market capitalisation. VNINDEX Index (or Vietnam Ho Chi Minh Stock Index) had touched a 52-week high of 644.56 points on 3rd Sept 2014, while it hit a low of 513.06 points on 17th Dec 2014. It is currently trading at 550-600 points. Vietnam stock market is currently trading at 12x, 30% lower than the rest of the region.
Economic highlights
Vietnam’s economic recovery is on track, driven by private investment capital with foreign direct investments.
Joanne Goh (65) 6878 5233
[email protected] ed: TH / sa: JC
Investors can gain exposure to Vietnam via the following two ETFS listed in the US and Singapore ETF Market Vectors Vietnam ETF db x-trackers FTSE Vietnam UCITS
Bloomberg/ Reuters/Local code VNM US Equity / VNM XFVT SP Equity / DFVT.SI/ HD9
Source: DBS. Tear sheets enclosed.
cc. Enclosed report by Irvin Seah on Vietnam: “Brighter Sparks”, 11June “Asia’s latest electronics spark”, 1 July
Market Focus ETF Strategy FTSE Vietnam vs MSCI Asean, USD terms 115
FROM 1/7/14 TO 1/7/15 DAILY INDEXED
110
105
100
Companies with Vietnam exposure under DBS coverage Company / Sectors
Exposure
Gamuda (GAM MK)
Gamuda has two property projects in Vietnam – one in HCMC and the other in Hanoi. Sales have picked up of late particularly in Hanoi where for the 9MFY15 period, sales in Vietnam were RM300m or 100% of its full-year target.
Sembcorp Industries (SCI SP)
SCI owns and operates industrial parks in Vietnam
Chinese textile and garment companies. Shenzhou International (2313 HK), Pacific Textile (1382 HK) and Texhong Textile (2678 HK)
Taking advantage of lower costs, diversifying risks from China, and most of all, to take advantage of existing duty-free benefits from FTA and possibly the TPP
MSCI ASEAN $
95
90
85
FTSE Vietnam $
80 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL
Source: Datastream
Source: DATASTREAM
TOP 10 Vietnam Stocks in Ho Chi Minh Stock Index Top 10 Stocks Index Weight(%) MCAP (USD Bank for Foreign Trade of Vietnam JSC 11.9 244,249 PetroVietnam Gas JSC 10.8 222,363 Vietnam Dairy Products JSC 10.5 212,247 VietinBank 6.5 133,563 Vingroup JSC 5.8 149,925 Bank for Investment and Development of V 5.7 116,680 Masan Group Corp 5.5 110,552 Bao Viet Holdings 2.5 52,141 Saigon Thuong Tin Commercial JSB 2.1 39,910 Hoa Phat Group JSC 1.9 39,780
Source: DBS
Source: Bloomberg Finance L.P.
Page 2
Market Vectors Vietnam ETF (Vietnam) VNM US Equity / VNM
SIP
Geo Focus-Equity Equity
Fund Objective & Information
DBS ETF RISK PROFILE
Market Vectors Vietnam ETF is an exchange traded fund incorporated in the USA. The Fund's objective is to replicate as closely as possible the price and yield performance of the Market Vectors Vietnam Index. The Fund invests at least 80% of its total assets in securities that comprise the Fund's benchmark index.
▼
Low
High
DBS Strategic Overview Vietnam Vietnam’s economic recovery is on track, driven by private investment capital with foreign direct investments. Its greatest asset is its educated, skilled human capital with its population of 90m and a young workforce, where 45% is under 30 years of age. We expect Vietnam’s economy to expand its GDP growth rate to 6.2% for 2015 and do better in 2016 with 6.4%. Recent reported data supports this positive trend such as: inflation continues to decline from its peak of 23% in August 2011 to 4% in 2014 and further flattens to 2% in 2015 with consumer prices of 0.16% over the previous month’s 0.14%, thanks to low global oil prices. Vietnam’s PMI index hit a record high in May at 54.8. Monetary policy remains accommodative. The country’s biggest challenge is the management of its public debt which is approaching 65% of GDP. The debt is unsustainable with long-term projects being financed by short-term loans. In early May, the State bank of Vietnam devalued its currency, the dong, to boost such efforts. Other policy challenges are to reform banks and state-owned enterprises and integrate the domestic firms into global supply chains and improve infrastructure. The Market Vector Vietnam ETF (VNM) has declined by 6.74% YTD. Fund vs. Benchmark Performance (1-year) 30D AVG Daily Turnover 17.7k Beta to MSCI World Index 0.59 1YR Tracking Error (NAV) 1.00%
Fund Data Fund Manager Total Annual Fees (%) Replication strategy Price (USD) NAV (USD) Premium/ (discount) to NAV AUM (USD million) Net inflows for the month Average PE Average PB Dividend Yield Dividend Frequency Top 10 Holdings (%) Bank for Foreign Trade of Viet Vingroup JSC Masan Group Corp Saigon Thuong Tin Commercial J Bao Viet Holdings PetroVietnam Technical Service Petrovietnam Fertilizer & Chem Donaco International Ltd Hansae Co Ltd Soco International PLC
Pri. Exchange Traded Currency Traded Lots
24-Jun-15 Market Vectors ETFs/USA 0.7% Full 18.31 18.10 0.18% 500.42 0.90 17.1x 1.4x 2.8% Annual
8.6 8.3 6.8 6.5 5.0 4.9 4.7 4.6 4.5 4.5
Inception Date NYSE Arca USD 1
14/08/2009 0 16.7x 1.4x
Leverage Index PE Index PB
Fund Allocation (Geographical and Sector)
Vietnam Thailand Australia South Korea U.K.
77.8 4.3 4.6 4.5 8.7 0
20
40
Utilities Industrial Financial Energy Consumer, Non-cyclical Consumer, Cyclical Basic Materials
UnRated ETF Fact Sheet
60
2.6 7.4
80
100
51.2
16.5
7.6 9.2 5.5 0
20
40
60
80
100
Page 3
db x-trackers FTSE Vietnam UCI (Vietnam) XFVT SP Equity / DFVT.SI/ HD9
SIP
Geo Focus-Equity Equity
Fund Objective & Information
DBS ETF RISK PROFILE
▼ db x-trackers - FTSE VIETNAM UCITS ETF is a UCITS IV compliant exchange traded fund incorporated in Luxembourg. The Fund's objective is to track the performance of FTSE Vietnam Index.
Low
High
DBS Strategic Overview Vietnam Vietnam’s economic recovery is on track, driven by private investment capital with foreign direct investments. Its greatest asset is its educated, skilled human capital with its population of 90m and a young workforce, where 45% is under 30 years of age. We expect Vietnam’s economy to expand its GDP growth rate to 6.2% for 2015 and do better in 2016 with 6.4%. Recent reported data supports this positive trend such as: inflation continues to decline from its peak of 23% in August 2011 to 4% in 2014 and further flattens to 2% in 2015 with consumer prices of 0.16% over the previous month’s 0.14%, thanks to low global oil prices. Vietnam’s PMI index hit a record high in May at 54.8. Monetary policy remains accommodative. The country’s biggest challenge is the management of its public debt which is approaching 65% of GDP. The debt is unsustainable with long-term projects being financed by short-term loans. In early May, the State bank of Vietnam devalued its currency, the dong, to boost such efforts. Other policy challenges are to reform banks and state-owned enterprises and integrate the domestic firms into global supply chains and improve infrastructure. The Market Vector Vietnam ETF (VNM) has declined by 6.74% YTD. Fund vs. Benchmark Performance (1-year) 30D AVG Daily Turnover 24.3k Beta to MSCI World Index 0.21 1YR Tracking Error (NAV) 0.06%
Fund Data Fund Manager Total Annual Fees (%) Replication strategy Price (USD) NAV (USD) Premium/ (discount) to NAV AUM (USD million) Net inflows for the month Average PE Average PB Dividend Yield Dividend Frequency Top 10 Holdings (%) Vingroup JSC Masan Group Corp Bank for Foreign Trade of Viet Hoa Phat Group JSC PetroVietnam Drilling and Well Saigon Thuong Tin Commercial J HAGL JSC Kinh Do Corp Saigon Securities Inc Petrovietnam Fertilizer & Chem
Pri. Exchange Traded Currency Traded Lots
25-Jun-15 db x-trackers SICAV ETFs/Luxem 0.9% Derivative 25.08 25.24 0.25% 342.21 0.00 13.4x 1.7x N.A. None
15.4 14.4 10.6 10.4 7.9 6.7 6.3 5.2 5.1 4.7
Inception Date Singapore USD 10
2/19/2008 0 13.5x 1.7x
Leverage Index PE Index PB
Fund Allocation (Geographical and Sector)
Vietnam
100.0 0
20
Utilities Basic Materials Oil & Gas Industrials Consumer Goods Financials
40
60
1.8 5.2 8.6 12.5 14.5 0
UnRated ETF Fact Sheet
20
80
100
57.5 40
60
80
100
Page 4
Market Focus ETF Strategy
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3.
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Page 5
Market Focus ETF Strategy
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Page 6
VN: Asia’s latest electronics spark
1 July 2015
Economics
VN: Asia’s latest electronics spark DBS Group Research
1 July 2015
• Vietnam’s electronics industry is growing rapidly • An increasingly important driver of growth, Vietnam’s electronics sector is fast catching up with regional powerhouses • Vietnam has leapfrogged the Philippines and Thailand, and will soon overtake Singapore to become the fifth largest electronics exporter in the region • Moving up the value chain and developing local talent will be crucial going forward
Vietnam was one of the fastest growing economies in Asia in 2014 and manufacturing has been the key driver. Much of the improvement in the sector can be attributed to electronics. Vietnam’s electronics industry is fast catching up with the regional powerhouses.
Electronics boom The electronics cluster grew rapidly in recent years. Electronics exports expanded by 78% per year for the past 4 years reaching USD 35bn in 2014. Electronics accounted for 23% of all exports in 2014, up from a mere 5% in 2010 (Chart 1). Electronics is now a key driver of the economy, accounting for 23.4% of GDP last year, up from just 5.2% in 2010 (Chart 2). Vietnam’s electronics boom started after 2010 due to a confluence of factors. Faced with weak global demand and persistent cost pressure, many manufacturers were searching for cheaper locations from which to produce. In addition, competition was intensifying, making the need to restructure the supply chain even more compelling. Vietnam’s pro-FDI policies, a weaker currency and
Chart 1: Electronics' share of total exports
Chart 2: Electronics driving growth
% share 30
% 25 24.0
25 20
Electronics share of total exports
15
23.3
18.2
23.4 19.3
20 Electronics mfg share of GDP
15 10
10 5
4.8
4.9
2009
2010
6.3
5
12.7
7.4 4.7
5.2
2009
2010
0
0 2011
2012
2013
2014
2011
2012
2013
2014f
Irvin Seah • (65) 6878-6727 •
[email protected] 1
Page 7
VN: Asia’s latest electronics spark
competitive labour force all added more development fuel to the sector in subsequent years.
New kid on the block
Vietnam’s electronics industry is catching up with other regional powerhouses
1 July 2015
Chart 3: Manufacturing FDI rose sharply USD bn 18
17.1 15.5
16
FDI into mfg (registered capital)
14
11.7 The rise of Vietnam’s 12 electronics cluster is due in part to the structural 10 7.8 shift in regional elec8 tronics supply chain. 6.0 Vietnam has captured 6 market share from many 4 of its regional peers. In a process seen over and 2 over in Asia, earlier play0 ers saw incomes and 2010 2011 2012 wages rise, opening the door for lower cost producers. Vietnam is the latest new kid on the block.
2013
2014
For example, after years of rapid growth, wages in China are now about 3 times higher than in Vietnam [1]. The has led to margin compression, forcing manufacturers to relocate their production bases. Beyond the cost advantage, geography plays a role. Vietnam’s proximity to China makes it easier to integrate into existing supply chains. A growing middle class supporting domestic demand has further strengthened Vietnam’s overall attractiveness for global manufacturers. FDI into Vietnam’s manufacturing sector has picked up sharply in recent years (Chart 3). This has not been limited to low end labour-intensive manufacturing. Increasingly, high tech electronics producers are establishing a presence in Vietnam. Intel, LG, Panasonic and Microsoft are among the global tech giants to have expanded in the country in recent years, marking a shift away from China. This trend is likely to persist. Korean electronics giant Samsung Electronics, for example, announced late last year, plans to invest USD 3bn in a new smartphone factory, alongside its existing USD 2bn plant.
Chart 5: Asia-8 electronics export share, 2014
Chart 4: Stunning rise in Vietnam electronics 2010=100 1200 1000
Vietnam electronics exports
800
Asia-8 ex-Vietnam electronics exports
TH 3.3%
VN 3.5%
PH 2.7% CN 50.2%
MY 7.8%
600 SG 3.8%
400 200 0 2010
2011
2012
2013
KR 17.4%
TW 11.3%
2014
Page 8
VN: Asia’s latest electronics spark
Electronics exports to reach USD 40bn by 2017
1 July 2015
Vietnam’s electronics sector is becoming a force in Asia. While electronics exports from Asia-8 (ex-Vietnam) rose by 17% between 2010-14, Vietnam’s electronics exports ballooned by about 10 times (Chart 4) [2]. Asia-8 economies exported about USD 1trn worth of electronics exports in 2014. Vietnam’s accounted for 3.5% of the total, up from a mere 0.4% in 2010 (Chart 5). Vietnam has leapfrogged ahead of Philippines and Thailand, and will likely overtake Singapore to become the fifth largest electronics exporter in the region over the next two years.
Bright prospects In the longer-term, the government expects electronics exports to reach USD 40 bn by 2017. Growth of a seemingly modest 5% per year would achieve the target. Nonetheless, longer-term sustainability of the industry will depend on whether Vietnam can raise productivity and move up the value chain. The influx of foreign electronics manufacturers has enabled the transfer of technology and skills. But the country needs to develop its own talent pool to sustain the trend. Otherwise, electronics would only migrate cheaper locations once wages start to rise. Indonesia, Cambodia, Laos and Myanmar all offer competitive alternatives to global manufacturers.
Note: [1] Based on statistics by International Labour Organisation, China’s average monthly wages was about USD 613 compared to Vietnam’s USD 197 in 2013. [2] Asia-8 includes China, Taiwan, Korea, Singapore, Malaysia, Thailand, Philippines and Vietnam
Page 9
VN: Asia’s latest electronics spark
1 July 2015
Recent Research Japan’s “go global” experience: implications for 30 Jun 15 China SG: watch core inflation
16 Jun 15
Qtrly: Economics-Markets-Strategy 3Q15
11 Jun 15
IN: weak monsoon a risk 8 Jun 15
IN: policy to be data dependent
7 Apr 15
SGD: making room for volatility
6 Apr 15
CN: recalibrating monetary policy
2 Apr 15
ID: tax targets are too optimistic 1 Apr 15
4 Jun 15
CNH: the growing influence of yuan 31 Mar 15 settlement in forex reserves
Rates: the rise in global yields – where to now? 25 May 15
CN: fiscal reforms to accelerate 27 Mar 15
TH: still climbing Sisyphus’ Hill
22 May 15
IN: assessing RBI priorities
24 Mar 15
IN: time to deliver
21 May 15
KR: wither export competitiveness?
19 Mar 15
KR: what will the AIIB mean for Korea?
19 May 15
CNH: a freer China 17 Mar 15
Asia: breaking new new ground
11 May 15
Qtrly: Economics-Markets-Strategy 2Q15
CN: the AIIB to test diplomatic skills
CNH: “Q” expansion heralds next stage of 6 May 15 capital account liberalization Greece: the clock is ticking 4 May15 MY: limited options
29 Apr15
India and Indonesia: taking stock
29 Apr 15
US: over the hump (and sliding fast)
28 Apr 15
Asia bonds: floating on a yield cushion
27 Apr 15
Asia: breaking new old ground
22 Apr 15
JP: portfolio rebalancing underway
16 Apr 15
US: Fed funds and such
14 Apr 15
CN: more inclusive urbanization policies
13 Apr 15
TH: further cuts unlikely
13 Apr 15
Asia cyclical dashboard: an eerie calm
8 Apr 15
IN budget: growth trumps fiscal goals ID: no shift in BI’s tight policy bias
12 Mar 15 2 Mar 15 27 Feb 15
SG budget: shaping Singapore’s future 24 Feb 15 India budget: a balancing act
17 Feb 15
US: substantial deflation here, now
16 Feb 15
SG: Jubilee budget 2015
10 Feb 15
USD Rates: the market vs the Fed
10 Feb 15
CN: the need for a better unemployment gauge
4 Feb 15
IN: facing ECB QE and a strong dollar
30 Jan 15
Asia: are currencies too strong?
28 Jan 15
ID: delivery is key
28 Jan 15
SG: old problem, new approaches
27 Jan 15
KR: explaining low inflation 21 Jan 15
Disclaimer: The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
Page 10
Vietnam
June 11, 2015
VN: brighter sparks • Growth remains steady; inflation has fallen to multi-year lows • We expect 6% growth this year and next. Full year 2015 inflation will drop to 1.3% • Although currency devaluation remains the preferred monetary policy tool, the central bank has some room for rate cuts
The economy is back on the radar screens. Growth is hovering at potential while inflation is at multi-year lows. Except for the risk on the external balance, overall prospects for the economy are good.
Electronics boost Vietnam was one of the fastest growing economies in Asia in 2014 (Chart 1). Growth hit 6.0% and has remained there in 1Q15. Manufacturing has been the key driver. Much of the improvement in the sector can be attributed to electronics. Electronics exports grew by 64% YoY in the first quarter (Chart 2). Although base effects play a part, structural shift in regional electronics supply chain is the main reason. Vietnam has captured the market shares of some of its regional peers. The stunning growth in this sector lies in stark contrast to other Asian producers. For example, electronics exports from Singapore have fallen by some 35% over the past two years. During this period, Vietnam’s electronics exports have tripled (Chart 2)! Essentially, margin compression in the electronics industry has led to structural “hollowing out” in certain electronics segments in some countries. Manufacturers of some lower value added products in more established electronics producing countries were forced to relocate their production base to cheaper locations in order to maintain their profits. Beyond push factors, Vietnam’s pro-FDI policies, cost advantages and a competitive labour force is a strong lure for manufacturers.
Chart 1: GDP growth for 2014 Annual GDP growth, % 8.0 7.0 6.0 5.0 4.0 3.0
VIETNAM
2.0 1.0 0.0
Irvin Seah • (65) 6878 6727 •
[email protected]
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June 11, 2015
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Chart 2: Singapore and Vietnam electronics exports Index, Jan12 = 100, 3mma 350 300
Latest: Apr15
250
VN electronics exports
200 150 SG electronics exports
100 50 Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Against the backdrop of the “hollowing out” phenomenon in countries such as China, Singapore and Korea, FDIs into Vietnam in contrast, has picked up sharply in recent years. For example, Korean electronics giant, Samsung Electronics has announced late last year plans to invest USD 3bn in a new smartphone factory in Vietnam, alongside its existing USD 2bn plant. Near-term prospects are bright for Vietnam’s electronics industry. Apart from the slight moderation in April, the US SEMI book-to-bill ratio, a leading indicators for global electronics cycle, is reflecting an upswing in global electronics demand compared to mid last year (Chart 3). Expectations are high that strong electronics export sales will continue to lead the improvement on the external front and drive overall GDP growth going forward. Hence, barring any significant negative growth shock in the global economy, Vietnam is on track to meet our full-year GDP forecast of a 6.0% in 2015 and 6.2% in 2016. That said, policymakers are even more upbeat about the country’s growth outlook. The official growth target has been set at 6.2% in 2015 and 6.5% in 2016.
Chart 3: Electronics cycle improving Index 1.15
Chart 4: Risk on trade balance % YoY 15
Latest: Apr15
1.10
10
1.05
5
1.00
0
0.95
-5
Growth in semicon sales
USD bn 2.0
-10 Jul-13
Jan-14
Jul-14
Jan-15
16
Exports Imports
1.5
14
1.0
12
0.5
10
0.0
8 6
-0.5
SEMI book-to-bill ratio (LHS) 0.90 Jan-13
USD bn
Trade balance (LHS)
Latest: May15
-1.0 Jan-14
Apr-14
Jul-14
4 Oct-14
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June 11, 2015
Chart 5: Dong devalued twice this year
Chart 6: Inflation has bottomed
VND/USD 22500
% MoM sa 1.6 1.4
22000
CPI inflation, % YoY
1.2
21500 21000
6
0.8
5
0.6
20000
0.4
19500 VND/USD
7
1.0
20500
19000
% YoY 8 CPI inflation, % MoM
4
0.2
3
0.0
2
-0.2
18500
-0.4
18000 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
-0.6 Jan-13
1
Latest: May15
0 Jul-13
Jan-14
Jul-14
Jan-15
Downside risk on external balances Risks reamin on the external front. Sluggish exports of agriculture products and commodities have weighed on overall export performance. Meanwhile, investment demand for imports has remained strong. Trade balances have deteriorated. Overall trade balance as of May15 registered a cumulative deficit of about USD 3.0bn. In fact, the ballooning trade deficit is one of the key reasons that prompted the State Bank of Vietnam to devalue the dong in May, its second devaluation since the earlier bout in January (Chart 5). Prices for agriculture products and commodities are expected to remain depressed due to weak demand. And this will consequently weigh down on the overall trade balance despite the strong showing in electronics. Overall trade balance for the year is now expected to register a deficit of USD 1.2bn, from USD 200mn previously.
Room for modest easing amid benign inflation Inflation appears to have bottomed. After the steep decline from 5.0% (YoY) in Jun14, inflation has risen from the trough of 0.3% in February to register 1.0% in May (Chart 6). This is further supported by the third consecutive month of positive MoM change in the headline number. While inflation is expected to rise gradually in the coming months, full-year inflation will likely average 1.3% in 2015 before rising to 3.5% in 2016.
Inflation forecast for 2015 lowered to 1.3%
Such inflations remains inside the 5.0% target set by policymakers. Granted, the justification for a rate cut is less compelling than at the beginning of the year. But weakening domestic demand remains a concern. Retail sales growth has eased to 8.4% YoY in May, down from 14.9% in January. And overall loan growth of 4.0% in the first four months of the year is still a far cry from the 15%-17% target for this year. To revitalise domestic demand and to ensure that the full-year growth target is met, the SBV may be pressured to ease monetary policy further. Indeed, though exports will provide the boost, weakening domestic demand will be a drag on overall GDP growth performance. The SBV has thus far preferred to devalue the dong to mitigate against the ballooning trade deficit and to preserve its foreign reserves. A more accommodative monetary policy amid a global disinflationary environment will not contradict the current policy direction. While we have since removed a 100bps rate cut for the second quarter, we have maintained the view for another 50bps cut in the third quarter of the year.
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Vietnam Economic Indicators 2014
2015f
2016f
1Q15
Real output and demand GDP growth
6.0
6.0
6.2
6.0
5.9
6.1
5.8
5.9
6.0
Real supply Agriculture & forestry Industry Construction Services
3.5 7.2 7.1 6.0
2.9 7.6 6.1 6.1
3.1 7.3 7.5 6.3
2.1 9.0 4.4 5.8
3.2 7.0 7.0 6.4
3.3 7.2 6.8 6.2
3.0 7.1 6.0 5.9
3.2 6.6 7.0 6.0
2.8 7.5 7.6 6.2
150.1 149.3 0.8
164.7 167.2 -2.5
182.0 181.4 0.6
36.3 39.0 -2.7
40.9 42.5 -1.6
42.7 41.4 1.3
44.8 44.3 0.5
40.7 42.5 -1.8
46.8 46.3 0.5
8.1 4.4
3.7 1.9
5.6 2.5
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
Inflation CPI inflation
4.1
1.3
3.5
0.7
1.0
1.3
2.3
3.4
3.8
Other Nominal GDP (USDbn) Unemployment rate (%, sa, eop)
186 3.4
200 3.0
220 2.8
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
May-10
Jan-12
Sep-13
External (nominal) Exports (USD bn) Imports (USD bn) Trade balance (USD bn) Current account bal (USD bn) % of GDP
2Q15f 3Q15f 4Q15f 1Q16f 2Q16f
- % change, year-on-year, unless otherwise specified - Figures may differ from official sources due to difference in reporting format
VN - nominal exchange rate
VN – prime interest rate
VND per USD
% pa
22100
14.0
21300
13.0
20500
12.0
19700
11.0
18900
10.0
18100
9.0
17300
8.0
16500 15700 Jan-07
7.0 Sep-08
May-10
Jan-12
Sep-13
May-15
6.0 Jan-07
Sep-08
May-15
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June 11, 2015
Recent Research 1 Jul 15
IN: policy to be data dependent
7 Apr 15
Japan’s “go global” experience: implications 30 Jun 15 for China
SGD: making room for volatility
6 Apr 15
CN: recalibrating monetary policy
2 Apr 15
ID: tax targets are too optimistic
1 Apr 15
VN: Asia’s latest electronics spark
SG: watch core inflation
16 Jun 15
Qtrly: Economics-Markets-Strategy 3Q15
11 Jun 15 8 Jun 15
CNH: the growing influence of yuan settlement in forex reserves
31 Mar 15
IN: weak monsoon a risk CN: the AIIB to test diplomatic skills
4 Jun 15
CN: fiscal reforms to accelerate
27 Mar 15
IN: assessing RBI priorities
24 Mar 15
KR: wither export competitiveness?
19 Mar 15
CNH: a freer China
17 Mar 15
Qtrly: Economics-Markets-Strategy 2Q15
12 Mar 15
Rates: the rise in global yields – where to now?
25 May 15
TH: still climbing Sisyphus’ Hill
22 May 15
IN: time to deliver
21 May 15
KR: what will the AIIB mean for Korea?
19 May 15
Asia: breaking new new ground
11 May 15
IN budget: growth trumps fiscal goals
2 Mar 15
ID: no shift in BI’s tight policy bias
27 Feb 15
SG budget: shaping Singapore’s future
24 Feb 15
4 May15
India budget: a balancing act
17 Feb 15
MY: limited options
29 Apr15
US: substantial deflation here, now
16 Feb 15
India and Indonesia: taking stock
29 Apr 15
SG: Jubilee budget 2015
10 Feb 15
US: over the hump (and sliding fast)
28 Apr 15
USD Rates: the market vs the Fed
10 Feb 15
Asia bonds: floating on a yield cushion
27 Apr 15
CN: the need for a better unemployment gauge
Asia: breaking new old ground
22 Apr 15
JP: portfolio rebalancing underway
16 Apr 15
US: Fed funds and such
14 Apr 15
CN: more inclusive urbanization policies
13 Apr 15
TH: further cuts unlikely
13 Apr 15
CNH: “Q” expansion heralds next stage of capital account liberalization
6 May 15
Greece: the clock is ticking
Asia cyclical dashboard: an eerie calm
4 Feb 15
IN: facing ECB QE and a strong dollar
30 Jan 15
Asia: are currencies too strong?
28 Jan 15
ID: delivery is key
28 Jan 15
SG: old problem, new approaches
27 Jan 15
KR: explaining low inflation
21 Jan 15
8 Apr 15
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