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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 ViewBullish 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.
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