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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


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