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VAM: Vietnam Market Analysis – February 2013

After a long Tet holiday, rumors about financial policy changes and further arrests of top bank leaders emerged and eroded all the stock market’s gains from the beginning of February. Consequently,  the VN-Index closed the month with a 0.52% loss, whilst HNX shed 1.05%. With a 3.05% fall, the VN30 seemed to be even more sensitive to the panic.
 
Inflation subdued in the month of Tet
Thanks to the phasing out of pharmaceutical products price increases, inflation slowed somewhat in February as the consumer price index climbed 7.02 percent YoY (versus 7.07 percent YoY in January). The concerns about the “traditional” consumer price hikes during the Tet holiday did not materialize, partly due to weaker festive demand than usual. The government also decided not to raise retail prices of petroleum products including gasoline to ensure economic stability and keep inflation under control. However,  Ministry of Finance did not provide the information on price stabilization fund balance for petroleum products, so it remains unclear on how the gasoline price control will transpire in the coming time.
 
Trade surplus continued, foreign reserves given a boost
According to GSO, the trade balance in February continued to show a surplus, reaching USD900mn, the highest monthly level ever and the ninth month of surplus in a row. With this result, following the USD700mn in Jan, the YTD trade surplus is now around USD1.6bn, a comfortable level which should lend healthy support to the already strong foreign reserve (by Vietnam standard) and consequently the value of the Dong. However, exchange rate showed unexpected volatility in the first two weeks after Tet, possibly due to brisk actions in the gold market and the upsetting rumours. To comfort the market, a Central bank spokesman has stated that no depreciation is being planned for the foreseeable future.
 
Newly released NPLs figure eased concerns on banking system reform.
While the Prime Minister requested to establish the AMC in 1Q 2013, the new NPLs figure released by the Governor was encouraging. Accordingly, bad debt on banking system has come down from 8% in June 2012 to 6% as banks wrote off non-performing loan balance at the end of last year. As the Government set credit growth target of 12% in 2013 to boost economic growth and implement the “dual-targets”, the destination for credit flow is still at stagnation point. Whilst total liquidity (M2) increased 3.31% YTD, the credit growth up to 21 Feb was till in negative territory at – 0.16% YTD.
 
Business environment still appears challenging
In line with stagnation on the supply side, demand remained weak with retail sales increasing only 3.6% in Jan-Feb period, which is not different from Dec 2012’s level. While the inventory level hiked 19.9% Y-o-Y, industrial production showed no improvement. In a related note, the government released that by February, the number of enterprises going out of business was 8,600, which exceeded the figure of 8,000 newly created enterprises, implying the fact that the business environment is still very difficult.
 
A bumpy recovery progress reflected by a drop in the PMI.
After adjusting for seasonal factors, including the Tet holidays, the HSBC Vietnam Manufacturing PMI posted 48.3 in February, down from 50.1 in January. This has been the largest dip since last August. Notably, in February, the survey showed a first drop in four months of manufacturing output; a decline in the level of new order received and a sixth time in seven months increase in average input prices.
 
Our ViewAfter a long Tet holiday, the stock market was hit by negative rumors about possible currency devaluation, financial policy changes and further arrests of banking officials. Although these rumours were addressed and corrected in a timely manner by the relevant authorities, the stock market and economy in general showed its uncertainty and vulnerability. In 2013, the story will be mainly about boosting production and restructuring the economy. Fortunately, Vietnam’s leaders’ determination is supported by a relatively stable currency and a healthy trade balance.
We remain cautious and will carefully watch development in the political space and changes in macro economy as that will definitely affect the stock market. We are generally comfortable with our equity position but may look to selectively acquire more stocks if the macro environment becomes more favourable.
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