Vietnam Update – December 2014
Posted on: December 24th, 2014

ECONOMIC UPDATE

The economy continues to recover amid record low inflation.

HSBC’s Purchasing Manager Index increased to 52.1 in November from 51.0 in October on the faster growth of output and new orders as well as record rise in stocks of purchases in the survey’s history. Meanwhile, Industrial Production Index also accelerated 7.5% YoY, led by the healthy expansion of the manufacturing and processing industry. [1]

The Consumer Price Index (CPI) declined 0.27% MoM on the negative growth of the transportation basket following a combined drastic cut of 6.6% in gasoline prices.1 The headline CPI was also below the market expectation with a 2.6% rise, the lowest rate since Sep 20091

Vietnam’s YTD trade surplus contracted to USD 2.06 billion due to November’s deficit of USD 300 million1. Machinery still made up a significant part of imports turnover, while Samsung’s mobile phones topped exports value1.

Foreign Direct Investment (FDI) Disbursement was on the right track with a growth of 6.2% YoY to reach USD 11.2 billion in November1, while committed FDI witnessed an upsurge to USD 17.3 billion from USD 13.7 billion last month on the back of the USD 3 billion investment from Samsung1.

 

STRUCTURAL REFORMS

According to the State Bank of Vietnam (SBV), credit rose 10.22% in the first 11 months of this year, while deposit expanded more than 13%. In an attempt to improve the transparency and risk management of the Vietnamese banking system, the SBV has just issued Circular 36/2014/TT-NHNN, which will take effect in Feb 2015, to restrict cash flows from banks into the stock market by putting a cap on the aggregate balances of loans for equity investment at 5% of the bank’s charter capital. Furthermore, Moody’s has changed Vietnamese banking system’s outlook to stable from negative, signalling an improved operating conditions and easing pressure on the system’s liquidity as deposit growth has outpaced loan growth.

Regarding the real estate market, the Vietnam’s National Assembly passed the amended Housing Law on Nov 25th to make a strong step towards easing foreign ownership restrictions in the residential property market. Accordingly, foreigners are allowed to buy all types of residential properties for both occupying and commercial purposes with no limitation on the number of dwelling units. The new law will come into effect from July 1st, 2015, and is expected to provide a significant boost to the recovery of the residential market.

The 8th National Assembly Meeting also approved the revised Investment Law and amended Enterprise Law to open up more sectors for private and foreign investments, together with a range of tax incentives, including the removal of 15% cap on deductible advertising and promotion expenses.

 

STOCK MARKET UPDATE

The VN-Index on Ho Chi Minh Stock Exchange ended the month with a considerable decline of 6.02% (USD terms). [1]  Both average daily trading volume and value witnessed a downturn of 20.13% and 6.01% respectively2, mainly driven by the significant drop of oil and gas stocks following OPEC decision on 27 Nov not to cut oil supply. GAS, PVD and PVS, for instance, lost 19% – 20% throughout the month. KDC, however, was the one to witness the largest foreign outflow of USD 22 million and down 12% MoM due to investors’ uncertainty on its future after the sale of 80% stake in its confectionery business to US-based Mondelez International. At the end of November 2014, Vietnam remained one of the most undervalued emerging markets with VN-Index being traded at 13.84x P/E, which was far below Indonesia’s, Philippines’, India’s and Thailand’s PE ratios.

 

 

Vietnam Update Dec 14

 

OUTLOOK

November has been a notable month in terms of policy changes, amid the ongoing macroeconomic stability. Undoubtedly, the stable economic conditions have contributed to upgrade the country’s credit rating, enabling the Government to issue USD 1 billion worth of sovereign bonds at favourable terms. World Bank in its ‘Taking Stock’ report therefore has raised forecast on Vietnam’s 2014 GDP growth to 5.6% from 5.4% previously. However, the nation’s outlook has to deal with two main risks, including the slow progress on structural reforms of both state-owned enterprises and banking sectors, as well as a heavy dependence on global economic conditions given the considerable size of the export sector.

 

[1] Source: General Statistics Office of Vietnam

[2] Source: Bloomberg