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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 ViewWe 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.

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