Outlook+for+2012+Vietnam 03012012 Mas

8/2/2019 Outlook+for+2012+Vietnam 03012012 Mas

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RESEARCH TEAM:

Le Quang Minh Manager [email protected] Khanh Hoang [email protected]

Pham Binh Phuong [email protected]

ANNUAL REPORT

AND OUTLOOK FOR 201203 January 2012

1. VN-INDEX target in FY2012: 345 (+/- 19.6%).

2. 2012 scenario: initial reduction, recovery since Q2, but

then drop back to 345 at year end.

VIETNAM MACRO STRATEGY MIRAE ASSET VIETNAM RESEARCH

Vietnam Economic in FY2011 3 Remarkable Indicators in FY2011Budget deficit (%) 4.9

Investment/GDP (%) 39.0

Saving/GDP (%) 27.0

NDF 12M (VND) 23,859

CDS (bps) 411.3

Net bond issuance (VND bn) 19.5

Bond market scale (VND bn) 347

VN-Index downed by (%) 26.7

HNX reached bottom at (pts) 57

Vietnam country risk and credit rating

2008 2009 2010 2011

S&P BB BB BB BB-

Moody's Ba3 Ba3 Ba3 B1

Fitch Ratings BB- BB- BB- B+

Source: S&P, Moody's and Fitch Rating

Market valuation Indicators

FY2011E FY2012F

EPS 42.81 43.21

PER 8.55 8.47

PBR 1.41 1.45

VNINDEX Forecast 345

Source: Bloomberg and MASVN Research

Moderate GDP growth

Turning point: success to curb inflation.

Fiscal policy: The Resolution No. 11 has not been

obeyed strictly.

BoP: the only sparkle in macro-economic picture

VND encounters risk of devaluation in early months ofFY2012.

Which policy to affect financial market in FY2012?

Fixed Income 14

Coupon interest rate declines but short term bond yield

hikes: Sign of vulnerability?

Potential bond market size.

FY2012 bond market prospect

Bond swap: a new OMO tool?

Equity Market 18

Market dropped continuously: HNX made low record.

Both Vietnam indices underperformed.

Low market valuation: risk or opportunity?

TA: Risk of strong selling momentum remains.

Vietnam Equity FY2012 Outlook: need more patience.

Key economic indicators and Mirae Asset Vietnam forecast

FY2006 FY 2007 FY 2008 FY 2009 FY 2010 FY2011E FY2012F

GDP Growth (YoY, % change) 8.18 8.63 6.18 5.34 6.78 5.89 5.90

Inflation (YoY, % change) 6.57 12.65 19.89 6.52 11.75 18.13 12.00

Money supply growth M2 (YoY, % change) 33.60 46.10 20.30 29.00 33.30 9.00 15.00

Overall balance (USD bn) 4.32 10.20 0.47 (8.88) (1.77) 1.60 1.00

Current account (USD bn) (0.16) (7.09) (10.79) (6.02) (4.25) (3.00) (4.50)

Capital account (USD bn) 3.09 17.73 12.34 6.76 5.63 8.60 9.50

Foreign currency reserves (USD bn) 13.59 23.75 24.18 16.80 12.30 14.50 15.00

FX rate (end of year, VND) 16,504 16,114 16,977 17,941 18,932 21,043 23,500

Discounting rate (%) 4.50 6.00 7.50 6.00 7.00 13.00 11.00

Refinancing rate (%) 6.50 6.50 9.50 8.00 9.00 15.00 13.00

5-Y G-bond yield (average, %) 8.29 8.73 10.00 11.68 14.00 12.00 11.00

Source: ADB, IMF and MAS VN Research

VIETNAM: 2011 MACRO ECONOMIC REVIEW


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MIRAE ASSET VIETNAM RESEARCH 26.12.2011 2

Vietnam has a moderate growth rate in FY2011. Industry and construction sectors, which accounts for 40% in

GDP, tends to slow down. Retail sales decelerate when purchasing power of consumers was weakened by

high inflation. SOEs continued to attract attention by their ineffectiveness and smaller contribution to GDP.

"Middle income trap" requires Vietnam needs more innovation. This innovation will likely be a chain of

restructures on all sectors. Even positive outcome expectation, FY2012 will remain volatile on the restructured

sectors.

Inflation peaked at 20% plus, was blamed on demand pull, cost push, inflation psychology, internal inflation,

etc... and was caused by multiple factors such as higher imported raw material price, high credit growth in the

past, inefficiency of capital use, outdated economic structures, large budget deficits, etc... Facing to the

inflation, the government has also implemented Resolution 11. However, effect of the Resolution was not

strong enough to tighten fiscal policy, monetary policy when the total investment grew, budget deficit ratio in

FY2011 is expected to remain at 5% of GDP. Excessive NPLs and alert illiquidity persist in banking system.

In the grey Vietnam economic picture, BOP of payments sparkled thanks to high exports growth and foreign

capital flows. In FY2011 Vietnam may have a record on remittances, FDI disbursement remained and moved

to manufacturing sectors. After 2-year deficit, Vietnam is projected overall balance surpluses in FY2011.

FY2012 is a hinge year of Vietnam's economy when massy "restructure" thinking dominates. Restructuring

activities in banking system is carried out parallel with curbing of inflation and in line with the warming real

estate market. Accordingly, interest rate can be pulled down, but not a big drop. VND devaluation is a main

risk of concern even though it is inevitable. Among those volatilities in FY2012, we expect there will be a

modest economic growth.

VIETNAM FY2011 OVERVIEW


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Figure 2: Construction and Industry sector remained key

driver of growth (%)

Figure 3: Real (deflator) retail growth remain low level and

is in downtrend (%)

Source: General Statistics Office (GSO) Source: General Statistics Office (GSO)

Vietnam is still in top economic growth in Asia despite slowing down

The economic growth in Asia have lagged as being affected by the global financial

crisis. Vietnam ranks at the 5th

position in term of economic growth in Asia, behind

China, Sri Lanka, Indonesia and India. Vietnams moderate growth imposes an

larger income gap between Vietnam and other coutries. The gap implies a more

challenge for Vietnam as the country is facing to midle income trap1 because its

economic growth depends on capital endownment, trade openness, real estate,

ODA, FDI, remitance, To deal and overwhelm the trap, Vietnam needs more

renovated policies to achieve higher productivity.

Vietnam needs more renovated

policies to achieve higher

productivity.

Figure 4: Vietnam was 5th

FYFY2011 economics growth in Asia (%)

Source: Bloomberg, General Statistics Office (GSO), MAS VN Research

1According to ADB, countries stuck in middle income trap are unable to compete with low income economies in manufacturing or with

advanced economies in high skill innovations. They enjoy short periods of growth followed by stagnation or even decline and are stuck atlow growth rates

0%

2%

4%

6%

8%

10%

12%

GDP Construction and Industry

Agriculture Service

0

40

80

120

160

200

0%

5%

10%

15%

20%

25%

30%

35%

Retail Sales (LHS) Nominal Growth Real Growth

9.1

7.97.6

6.56.0

5.65.3

4.8 4.7

3.7 3.7 3.5

2.7

0

1

2

3

4

5

6

7

8

9

10

CN SL IN ID VN HK SG TW MY KR PH PK TH


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Turning point: success to curb inflation.

Inflation causes

Inflation is one of the most risky factor dominating Vietnams economy. Vietnam has

experienced two-digit CPI stage and its inflation ranks at 2nd

position in the world.

Inflation generated from: (1) Fiscal policy: persistant and large fiscal deficit,

inefficient public investment, sluggish SOE restructure and (2) Prolonged loosen

monetary policy (see further in the Monetary policy). Then high inflation comes,

VND devaluation, unstable gold and foreign currency market and lower belief on

VND.

Inflation was on peak in August FY2011

The most significant turning point is that after inflation was on peak in AugustFY2011, then it decline thanks to long-lasting tightening monetary policy. Inflation

FY2011 is forecasted at 18.1% and the Government has targeted to pull FY2012

inflation down to one digit number. However, increase of electricity, water, coal

prices at 10-15%, and the possibility of VND devaluation will obstruct the

deceleration of inflation in FY2012. In general, inflation FY2012 may fall to 11-12%.

CPI may fall to the lowest after June FY2012 then surge again.

Fiscal policy is the core blame

for high inflation.

Even CPI is decreasing, buthard to be one-digit CPI.

Figure 5: CPI cooled down and expected to lower to

single digit by end of FY2012 (%)

Figure 6: Money supply (M2) and food are key drivers of

inflation (%)

Source: General Statistics Office (GSO), MASVN Research Source: General Statistics Office (GSO), SBV

Fiscal policy: The Resolution No. 11 has not been

obeyed strictly

No public investment cutback. In order to curb inflation, stabilize macroeconomic,

fiscal policy has been strongly tightened in FY2011, in which reduction on national

investment and on government budget deficit are the most important measures.

However, some sectors and localities have not strictly followed the resolution. In

specific, 638 projects which use state budget have not been newly carried out in

FY2011 but still received VND1,763 billion for new implemenation. In addition, over

2,000 projects which use local budget also have been fund allocation. Moreover,

many local authorities request for more fund allocation from goverment.

Public investment has not been

reduced.

-1

0

1

2

3

4

5

0

5

10

15

20

25

30

CPI (m-o-m) - RHS CPI (y-o-y) - LHS

0%

10%

20%

30%

40%

50%

60%

CPI (y-o-y) Food & Food Stuff

Money Supply M2


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Extremely high state budget overspending: Pursuant to Resolution No. 11

issued by the Government, national spending should be restricted. However, total

national budget overspending is extremely high, exceeding the approved number to

9.7%. Public investment rose 15.1% or VND23,000 billion. According to Ministry ofFinance, state budget deficit ratio per GDP FY2011 could reach 4.9%, which will

intensify pressure on CPI in early months of FY2012.

State expenditure plans to be

restricted but total state

expenditure is higher 9.7% than

approved number, in which stateinvestment increases 15.1%

Table 1: State budget in FY2011 (VND tn)

Item FY2011E

Total revenues 674.5

Total expenses 796

Budget Deficit 121.5

Budget Deficit/GDP 4.9%

Source: GSO

More investment, less savings.

The total investment in FY2011 is estimated to reach VND930,000 billion, up by 16.3%

YoY and equaling to 41-41.5% of GDP, whereas savings tend to fall from 30.4% GDP in

2010 to 27.6-27.9% in FY2011. To compensate for the imbalance between savings and

investments, foreign direct investment (FDI) is expected to increase 5.8% in FY2011 or

VND226.9 trillion, occupying 25.9% of the total investments All the figures have shown

that, Vietnams economic growth much still depends on foreign capital flows. If the

foreign capital flows weaken, the economic growth may be sluggish.

Figure 7: The gap between Saving/GDP and Investment/GDP widened (%)

Source: General Statistics Office (GSO)

FDI disbursement positive: Despite the fact that FY2011 is forecasted a year of

difficulty in attracting FDI, FDI disbursement is still positive. By the end of November

FY2011, FDI disbursement has reached USD11 billion, up 5.8% YoY.

Stumbling FDI commitment: -25%. But, newly registered FDI is USD14 billion

only, or equivalent to 85% in the same period in 2010. Intrinsic macroeconomic

turmoil (high CPI, FX devaluation pressure) eroded investors confidence on

business environment. World Economic Forum (WEF) announced the GlobalFinancial Development Report FY2011, in which Vietnam fell four spots to 50

thout

Low savings but high

investment: economic growth

depends on foreign capital (FDI,

FII and ODA).

25

27

29

31

33

35

37

39

41

43

45

% Saving of GDP

% Investment of GDP


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of 60 countries and territories covered in the Financial Development Index. Global

Competitiveness Report FY2011FY2012 recently announced by WEF ranked

Vietnam at the 65th

out of 142 countries surveyed, dropping 6pts from last year.

Those are negative causes for a further FDI reduction in FY2012.

Table 2: FDI statistics

Item11M2010 11M2011 %

Change(USD mn) (USD mn)

FDI Statistics 9.95 10.05 101%

FDI Commitment 15.148 12.697 84%

Newly registered 13.29 9.914 75%

Registered capital increased 1.858 2.783 150%

No. of Project

Newly registered 1.168 919 79%

Registered capital increased 383 324 85%

Source: Ministry of Planning and Investment (MoPI)

By sector, production and manufacturing industry ranks in the 1st

in attracting

foreign investors with 382 newly registered projects with total amount of USD6.24

billion, occupying 49.1% of the total investment registered in 11 months. Ranking in

the 2nd

is electricity distribution and production with total newly registered amount of

USD2.53 billion, occupying 20% of the total investments. Standing at the 3rd

is

construction sector with 119 newly registered projects with total amount of USD1.19

billion or 9.4% of the total investments

Positive signs: The foreign

investment is shifting to the

production area.

Figure 8: The positive shift in the structure of FDI disbursement (%)

2010 11MFY2011


Stable ODA disbursement: The ODA disbursement in 11 months of FY2011 is

nearly USD3 billion and this figures could reach USD3.65 billion, increasing by 3%

YoY, which is far below compared to USD7.9 billion that investors committed in

2010, said Ministry of Planning and Investment (MoIP). This is still a positive signal

for Vietnam under the circumstance that FDI commitment falls.

Once FII and FDI commitment

decrease, ODA is an important

funding for CA deficit.

RealEstate,37.0%

Processing, 27.0%

Electricity,16.0%

Construction, 9.0%

Others,11.0%

RealEstate,3.7%

Processing, 49.1%

Electricity,19.8%

Construction, 9.4%

Others,18.0%


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Figure 9: ODA disbursement in FY2011 is not as high as the previous year but

expected to improve (USD bn)


Balance of Payment: the only sparkle in macro-

economic picture

ietnam has recognized a positive balance of payment in FY2011. After facing up with

eficit in two consecutive years (USD8.9 billion in 2009 and USD1.6 billion in 2010),

ietnams BOP in FY2011 has a surplus of USD1.6 billion, which is a bright point in the

acroeconomic picture of Vietnam and helps to strengthen its forex reserves.

Table 3: Balance of Payment (USD bn)

FY2009 FY2010 FY2011E FY2012F

Current Account -6.0 -4.2 -3.0 -4.5

Trade deficit -8.3 -7.1 -6.0 -7.0

Income and services account -4.2 -5.8 -6.0 -7.0

Transfers 6.5 8.7 9.0 9.5

Capital Account 6.7 5.6 8.6 9.5

Net FDI 6.9 7.1 10.0 9.0

FII 0.0 2.4 1.0 1.0

Short-term debts 0.2 2.8 0.5 1.0

Long-term capital 4.4 1.0 2.6 3.5

Money and Deposits -4.8 -7.7 -5.5 -5.0

Emission and Errors -9.6 -3.0 -4.0 -4.0

Overall BOP -8.9 -1.6 1.6 1.0

Source: ADB and MASVN Research

After 2 year of negative overall

balance, FY2011 marked up a

surplus in the balance.

Surplus of overall balances in FY2011 relies on:

Balances of merchandise trade, services and income improved. Trade

deficit in December alone fell to USD700 million, bringing the total trade

gap in FYFY2011 to USD9.5 billion, down by 10.1% against the same

period last year and equaling to 10.2% of the total export turnover. By the

end of December, export has reached a growth rate of 33.3% compared to

29.2% of the import growth rate, which help to decline the trade deficit in

FY2011, the lowest level in last 5 years.

3.53.65

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


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Figure 10: Trade deficit narrowed in 2H011 (USD bn) Figure 11: NDF Sign of unstable FX rate in FYFY2012

Source: Bloomberg, SBV, VCB and MAS VN Research Source: Bloomberg and SBV

Steady forex supply: both FDI and ODA disbursement are higher than

FY2011. In addition, overseas remittance may reach USD9 billion, up by

12.5%. Those numbers are essential for an overall balance surplus in

FY2011.

Risk issues in FY2012: largertrade deficit (due to surge of credit growth,

public investment), lower capital account surplus because of an expected

FDI fall.

VND encounters risk of devaluation in early months ofFY2012

VND has been under tough pressure of devaluation against USD in the past years.

The reason for the devaluation of VND can be explained by the economic structure

(significant trade deficit), instability of the macroeconomic (high inflation, state

budget deficits)

Exchange rate is still considered as the hottest variable of Vietnams economy in

FY2011 as State Bank of Vietnam (SBV) officially adjusted the exchange rate to

huge amount: 9.3% in February. The adjustment of exchange rate is to narrow the

gap between official and free exchange rate. Then SBV increased triple times (1%each) of required forex reserve in banking system (6%). At the same time, SBV set

a cap twice on FCY deposit interest rate at 3% (in April) and 2% (in June) for

residential deposit. Those policies showed to be successful to stabilize FX rate (of

course with a selling of USD 1.5bn from SBV-Reuters).

Even though, we think that administration measures will be effective in the short

term only. To keep the valuation of VND in the mid and long term, inflation, trade

deficit and budget deficit must be declined. Thus, we are cautious to forecast that

exchange rate will be under tension pressure in the early months of next year

because:

Trade deficit will still be a concern in the next year. It is unlikely to raisethe price of commodities for export in FY2011. Furthermore, export activity

Vietnam dong is one of the

weakest currencies in the Asia.

Vietnam dong is fixed vs. USD

while other currencies are

weakened, as a basis for

devaluating forex rate in earlyFY2012.

-4,000

-3,000

-2,000

-1,000

0

1,000

Trade balance 2 per. Mov. Avg. (Trade balance)

18,000

19,000

20,000

21,000

22,000

23,000

24,000

NDF +3M NDF +12M Parallel Market Rate


10/23


may not achieve a significant growth as world economic outlook is not on

recovery track, particularly some largest export markets of Vietnam

including EU, USA which are still facing up with economic recession.

The restructuring of banking system will request SBV to pump

considerable amount of M2 to refinance NPLs (mainly for property

loans) or support liquidity for small banks.

CPI is forecasted to decline in FY2012, yet it may remain at two digits.

Hence, inflation is still a risk towards exchange rate fluctuation.

High pressure from FII foreign investors to withdraw from Vietnam

market. In FY2012, there will be de-investment movements with a potential

mount up to USD2 billion. In addition, global public debt crisis will not be

recovered in the short run, and foreign investors may withdraw from

Vietnam and invest in some key markets with lower risk as what had

happened in 2008.

The policy to lower loan deposit rate by SBV in coming months boosts

VND loan demand then intensifies pressure on VND devaluation.

Annual phenomenon: FX often changed after TET holidays. SBV has

maintained stable FX rate for almost a year. After a long period of fixed

FX rate, there would be a sudden and big devaluation.

Figure 12: Pressure made USD/VND rate unstable (VND) Figure 13: VNDthe most stable currency?

Source: Bloomberg, SBV, VCB and MAS VN Research Source: Bloomberg and SBV

Tightening monetary policy:

In the last 15 years, M2 growth rate was higher than GDP growth rate from 3x

to 4x but, in FY2011, this ratio is 1.67x. This is a positive signal for the economy

since the economy just needs 1.67% loan growth to achieve 1% GDP growth. In

other words, cost of GDP growth becomes cheaper than that in 1996-2010. If the

low ratio was maintained, the economy has been in effectiveness.

18,000

18,500

19,000

19,500

20,000

20,500

21,000

21,500

22,000

22,500

VCB Ask Parallel market Interbank

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

RUB INR BRL VND


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Figure 14: GDP and Money supply M2

Source: GSO, SBV and MASVN Research

Credit and M2 supply strongly tightened in FY2011. The credit growth of Vietnam in

the last few years has been high at 30 50% p.a. with total outstanding loans of 130%

GDP. It is obviously that the loosen monetary policy in previous years is the cause for

current inflation boom. With the aim to fight inflation, SBV adjusted credit growth ceilings

in FY2011 to below 20% from 23% and M2 growth to 15-16% from 21-24%. Two targets

have been strongly revised compared to 2010 (credit growth in 2010 was 32.4% and M2

was 33.3%).

Credit increased by 12% and

M2 money supply will increase

by 8-9% by the end of FY2011.

Figure 15: Credit growth and money supply FY2011 (%)Figure 16: Policies rate increased made banking system to

be in trouble (%)

Source: SBV Source: SBV and Bloomberg

Policy interest rates succeed in curbing inflation but cause instability for the

economy. Inflation in FY2011 exceeds 20% and urges SBV utilize tightened

monetary policies. SBV has raised discount rate from 7% to 13% in two times since

the beginning of this year and to raise refinancing rate to 15% from 4% in five times.

Besides, SBV also stipulates to reduce non-production credit growth to 22% in

October FY2011 and 16% in FY2011. As a result, inflation has been curbed,

however, lending rates surged over 20%, which leads many companies to face up

with difficulties. Then, SBV applies the deposit ceilings at 14% with expectation of

loan interest rate reduction , but this cap tosses small banks into insufficient liquidity(as nominal deposit interest rate of 14% means a negative real interest rate), higher

Commercial banks look for

loans with higher interest rates

even on the interbank market.

7.0 7.5 7.0 6.0

34.0

25.5 30.7

9.0

4.9

3.4

4.4

1.5

0

1

2

3

4

5

6

0

5

10

15

20

25

30

35

40

1996-2000 2001-2005 2006-2010 2011E

GDP (%) - LHS Money Supply M2 (%) - LHS M2/GDP - RHS

10%

20%

30%

40%

50%

60%

Credit Growth (YoY) Money Supply (YoY)

5

7

9

11

13

15

17

19

21

O/N Refinacing rate Discounting rate


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NPLs (higher loan interest rates cast debtors profits or even lead them to loss).

Because of illiquidity, small banks have to run a race on interbank market to

mobilize enough fund, leading not only to higher VNIBOR, but also some default on

the interbank market.

In addition, SBV also restricts to offering FCY loans for unnecessary good import,

limits gold bar trading. All these measures reveal a drastic effort in tightened

monetary policies. By 20th

October 2010, credit growth and M2 growth reached

8.61% and 7.5% compared to 2010 respectively. Credit growth and M2 growth in

FY2011 is estimated to reach 12% and 9%.

Which policy to affect financial market in FY2012?

Monetary policy: loosening. According to the press release by SBV, key

monetary policies in FY2012 will be:

Target M2 growth: 14-16%; Target credit growth: 15-17%;

SBVs message is to achieve dual goals: (1) to curb inflation, stabilize the

macroeconomic and (2) to support for economic growth at reasonable rate. In order

to fulfill the goals, we forecast deposit and lending rates may fall 1-2% and

exchange rate will be adjusted in Q1-FY2012 to ease difficulties for businesses and

boost export activity.

Banking restructure: no bankruptcy but elimination. There will be many banks

willing to be merged in FY2012. Regardless of merging methods, NPL will not be

erased. Under the rough economic circumstances, NPL will jump to above 3.2%since NPL at leasing companies (subsidiaries of many commercial banks) has

reached 45%; CAR at minus 10.92% (Reported by National Financial Supervisory

Commission - NFSC). To save illiquid banks, SBV has to pump considerable

amount to support banking liquidity. For the small banks, they also need to reduce

NPL ratio. The fastest method to reduce NPL ratio is to hike chartered/equity

capital, bringing in about more money in circulation. Then crowding out effect is

inevitable. And banks themselves will be debtors in loan attraction and in interest

rate racing. Thus, it is hard to control inflation and to reduce lending interest rates

sharply in FY2012.

Restructure of stock market with four targets: restructure securities

companies; stock exchange merge; stocks and bonds qualification upgrade

and investment vehicle development. According to PhD Nguyen Son, Head of

Market Development (State Securities Commission SSC), the restructuring will

base on financial safety. Accordingly, securities companies will be classified into

three groups: normal operation; under supervision and strictly under supervision.

The specific plan about securities companies restructuring will be accomplished

from now till 1st

April FY2012. Two stock exchanges are proposed to be merged.

The restructure of listed stocks and bonds will be considered to upgrade

qualification and to have few bond codes to make better liquidity for the market. A

resolution on this matter will be released in this December. SSC also transfers

treasury bills from State Treasury into the secondary market. Development of

investment vehicle will focus in open and pension fund.

Is inflation control and support

economic growth parallel?

To restructure the banks, the

total payment will rise and

appear "overwhelming." Inflation

and interest rates have

decreased but remained high in

FY2012.

"There are at least 20 securities

companies have problems, theymust quickly restructure" (PhD

Nguyen Son).


13/23


Restructure of gold bar market: monopoly in gold bar production. Pursuant to

the Decree draft on management of gold bar production, SBV will consider to issue

licenses for companies to produce gold bar if they meet 4 criteria: (1) set up under

the Enterprise Law and register to produce gold fine in registered business license;(2) has chartered capital higher VND500 billion; (3) has equipment and facilities for

gold bar production and (4) occupy higher than 25% of the gold bar market share in

three latest years. The market statistics has shown that, SJC occupies 90% of the

gold bar market share, so only SJC meets this requirement. If this draft is approved,

12,000 companies and gold producers legally will be eliminated.

FY2012 will be a busy year for restructure movement. The whole country will

be a large construction site. In our view, whether the result achieved is

either bad or good, the roadmap to this success is full of obstacles with

inevitable shocks. Thus, investors should also restructure their investment

portfolio/strategy to avoid any risk that may cause by the restructure

movement in FY2012.

One Decree, 12,000 gold bar

producers and entities will be

disappeared.


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15/23


Bond yield reached peak by year end but secondary market trading activity is

dull. The total trading value in FY2011 is VND73,000 billion, down by 9.88% YoY

with the average trading value of VND280 billion per session, decreasing by

17.65% compared to 2010.Figure 19: Daily average secondary bond trading value Figure 20: Vietnam bond market composition

Source: HNX Source: HNX

Short term bond yield hikes again: macro economic turmoil remains? 1-Y G-

bond yield increase 2.59% from the beginning of the year and 1-Y G-bond yield has

higher 10-Y G-bond at 0.4%. When short term bond has little higher yield than long

term bond, this flat yield curve implies a new uncertainty2. This releases a

worrisome for investors, signaling uncertainties still exist in FY2012.

Figure 21: Bond issuance value

Source: HNX

Potential bond market size.

Bond market size is USD17 billion, plus 22.2% than 2010. However, the market size is

pretty low compared to regional countries. Vietnams bond market value stay at 15.2%

of GDP, much lower than Malaysia (100.7%), Singapore (75.7%), This comparison

2A flat yield curve is observed when all maturitieshave similar yields, whereas a humped curve results when short-term and long-termyields are equal and medium-term yields are higher than those of the short-term and long-term. A flat curve sends signals of uncertainty inthe economy. This mixed signal can revert to a normal curve or could later result into an inverted curve.

0

100

200

300

400

500

600

700

800

900

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

VND bn

2009 2010 2011

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

2009 2010 2011

Foreign Investors Domestic Investors

27,000

56,000

37,500

0

10,000

20,000

30,000

40,000

50,000

60,000

2009 2010 2011

VND bn


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shows that bond market has not been a efficient capital raising tool for enterprises.

Figure 22: Asia countries bond market value/GDP in

FY2011

Figure 23: Bond market value (USD bn) and growth rate in

FY2011 (%)

Source: ADB and HNX Source: ADB and HNX

FY2012 bond market prospect

Long-term view:The Vietnams bond market occupies some 15.2% of GDP, which

is quite low compared to other countries in the world with the ratio at 50-100% of

GDP. Therefore, its very potential for Vietnams bond market to develop. Bond

market not only helps to mobilize capital effectively, it also plays an important role in

macroeconomic signaling.

Plan for FY2012:

New Issuance value: VND 45 trillion.

Maturity Value: VND 80 trillion.

Net issuance value: VND -35 trillion.

For the State, this is a backward in the financial market since the budget will lose

VND35 trillion to settle for bonds on maturity. For credit institutions, a considerable

amount will be injected into the market in FY2012. And liquidity will be cooled down

if the Government strictly follows this plan.

Bond swap: a new OMO tool?

Ministry of Finance (MoF) on 9th

November FY2011 issued Circular No.

150/2011/TT-BTC on bond swap management with following conditions: Bond to be

exchanged should be listed on Hanoi Stock Exchange and more than 1-Y remaining

maturity. MoF decides discount rate to define bond price to be swapped. State

Treasury will negotiate with bond holders about discount rate, which is set under a

range of discount rate set by MoF.

Government will net inject

VND35 trillion via bond market?

Bonds swap must deal with the

State, enterprises dare to deal?

1.9

40.2

4.3

33.5

12.2

1.4

11.9

60.5

30.3

42.2

52.3

13.8

0

40

80

120

IN MA PH SI TH VI

G-Bond (% of GDP) C-Bond (% of GDP)

110

263

74

186

225

170

16.5

2.5

11.2

6.8

22.2

0

10

20

30

0

100

200

300

IN MA PH SI TH VI

Bond market scale to 2011Q3 - LHS

Growth rate (YoY) - RHS


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Figure 24:Bond swap procedure

Source: Circular No. 150/2011/TT-BTC on Nov 09 2011

In our opinion, bond swap will impact financial market in three directions:

Bond swap is not much different from OMO activities and the State will

adjust money pumping or withdrawing.

If the State faces up with serious budget deficit, possibility to refund bond

(at par value) will be difficult then Government may issue new bonds to

swap with bond matured-to-be.

To restructure loan easily: normally, it is difficult to adjust maturity time for

issued bonds. With bond swap, the State can extend or shorten the

average maturity time easily.


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19/23


Figure 26: Vietnam market worst performance (%) Figure 27: Lowest market valuation but high discount

Source: Bloomberg Source: Bloomberg

Market valuation is low: risk or opportunity?Low PER shows negative investors'

outlook of business. Confidence of investors has declined significantly in FY2011,

securities market was not longer an attractive investment channel, so that share prices

decreased continuously even though improving business results of companies. Vietnam

market PBR is not as quite attractive as other regional markets, raising of equity capital

of many companies led to significant dilution. By the end of FY2011, Vietnam market

trades at PER and PBR of 7.69x and 1.27x respectively (down sharply from 10.43x and

1.85x since beginning of the year).

Even thought market valuation is low (see Figure 27), Vietnam's market is facing a

series of structural risks (low liquidity, small-scale but lack of transparency and the

uncertainty economic outlook) so that the market does not seem attractive.

High structural risks made low

market valuation become not

attractive.

Table 4: Vietnam market composition

SectorMkt cap(VND bn)

WeightedMkt cap

PER PBR ROA ROE

Oil & Gas 10,892 1.9% 4.9 1.0 6.3% 19.9%

Material 43,213 7.6% 4.5 2.4 16.3% 24.5%

Industry 45,387 8.0% 6.1 0.8 6.7% 13.6%

Consumer 129,195 22.7% 9.7 3.2 19.2% 29.3%

Medical & Health Care 7,989 1.4% 6.6 1.8 16.6% 25.6%

Consumer Services 21,436 3.8% 17.2 3.3 4.6% 10.5%

Utilities 10,514 1.9% 7.5 0.8 8.9% 15.3%

Finance 143,116 25.2% 13.0 3.0 5.1% 18.0%

Information Technology 13,936 2.5% 8.5 1.7 9.9% 27.3%

Banking 142,331 25.1% 7.1 1.3 1.4% 19.2%

Market 568,009 100.0% 8.2 2.3 8.7% 21.0%

Source: Stoxplus

Market Composition: There are 700 listed firms on Vietnam stock exchange in

-26.7

-23.5

-22.7

-21.2

-20.5

-19.3

-17.3

-12

-8.3

-3.8

-2.4

1.9

3.2

5.3

-35 -15 5

Vietnam (VN-Index)

India (BSE 100)

China (Shanghai)

Taiwan (TWSE)

HongKong (HangSeng)

Japan (Nikkie 225)

Singapore (STI)

Korea (KOSPI)

UK (FTSE)

Thailand (SET)

Malaysia (KLCI)

Indonesia (JCI)

Phillipines (PCOMP)

US (DJIA)

4.99

7.69

8.33

9.33

11.67

12.57

12.89

13.42

18.35

0.90

1.27

1.32

1.29

1.81

1.93

1.99

1.98

1.15

0 5 10 15 20

RU

VN

HK

BR

CH

TH

US

IN

KR

PBR PER


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FY2011, with 54 newly listed companies. In which, there are 25 new listed companies

on HSX and 29 on HNX. The poor performance of securities market and low share price

did not motivate companies to list on stock exchange, so the new list stock decrease

significantly. Number of listed companies on the market is most concentrated in the

industry sector with 292 codes. Banking and finance has the highest capitalization in themarket with similar scales at over VND140 trillion.

Market Statistics:

In FY2011, total trading volume reached more than 15.8 billion unit with market

value is at more than VND 236 trillion in FY2011.

The market cycle was one boom month accompanied with two burst months.

Boom months often are March, June, Sep and Dec.

Foreign investors tend to sell higher than to buy in second half of the year and

they only hold 14.63pct of total market shares.

In downward channel, many stocks declined by more than 80pct, while there

only 2 stocks gained 100pct. In last two years, the probability distribution on a monthly rate of return of the

VN-Index skew to the right (with a long tail to the right, see Figure 22). The

meaning of probability distribution is that investors have higher losing

probability than gaining.

Figure 22: Monthly distribution of VN-INDEX

Source: MAS VN Research

Technical Analysis: Risk of strong selling momentum remains in FY2012

Thus we expect that, in early of FY2012, Government will continue tightening monetary

policy. And the authority may loosen monetary policy cautiously when macro indicators

improve, however it is hard to support securities markets to have strong recovery. On

the other hand, the pressure of divestments from many funds in FY2012 is quite strong.

Before the decision of closing fund or shift to opened-end fund, VN-Index has high risk

level. The bluechips is likely to have strong selling pressure and more underperformed.

The sideway price chart is a quite reliability channel since Sep 09 has been broken. The

heavy selling pressure broke this price channel by 13 black candles in the last 15

candles from the beginning of this trend. Therefore, the risk of VN-Index will continue to

have more adjustment. Hence, new balance point for VN-INDEX will be under 330.

0

1

2

3

4

5

6

-10% -7% -4% -1% 2% 5% 8% 11% More

Frequency


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Figure 29: Technical analysis of VN-INDEX


Vietnam Equity FY2012 Outlook

Valuation indicators: Vietnam market FY2012 outlook may not have much different

as in FT2011. The EPS, PER and PBR of market do not attract investors. Compared

with other investment channels such as savings, and even holding savings in USD have

high rate of return than investing in stocks. For example, if interest rates will be reduced

to 12% in FYFY2012, the nominal rate of return is 12% (equivalent to PER at 8.3x). If

buying bonds, the nominal rate of return is 12.5%. Whereas if you invest in shares, the

expected rate of return will be only 11.7 to 11.8% (calculated by reversing of PER) plus

the cost of reduction risk. This scenario is really discouraging investors.

Table 5:Vietnam market valuation indicators and forecast

Item FYFY2011E FYFY2012F FY2013F

EPS* 42.81 43.21 71.09

PER 8.55 8.47 5.15

PBR 1.41 1.45 1.32

Source: Bloomberg

FY2012 Forecast: FED Model.The FED model indicates the correlation between the

rate of return of the stock market in the future (E/P) and 10-Y government bond yields(Y). This correlation expressed by the equation E/P=Y. When E/P> Y, the profits of the

stock higher bonds so investors should buy stocks. Conversely, when E/P


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As estimated above, amplitude of volatility of Vn-Index may be about +/- 19.6%. With a

probability of 78.9% increasing, we believe that most of the time in FY2012 will range

between 345+20%. However, with current market trends, market capacity will be in the

range from 345 down - 19.6% starting in the first quarter in FY2012. Thus, one scenarioVN-Index as the following chart:

Figure 30: Vietnam market scenario in FYFY2012


In conclusion, FY2012 welcomes investors with many difficulties and challenges.Macro situation will be even more unstable, not support for the strong recovery of

the market. The price of important commodities such as electricity, water, coal

and foreign currency, are expected to increase in 1Q2012. Hopefully, some new

catalysts may appear to help market to improve in the short term as a legal

barrier to establish opened-end fund, extend daily trading time and shorter

clearing time subtraction. However, the most concerned risk of Vietnam market is

low liquidity, this becomes the resistance to the attraction as well as the

confidence of investors. Investment activities in the stock market in FY2012 will

bring high risk when the target VN-Index is 345pts (comparative analysis) and

330pts (technical analysis). In our FY2012 market forecast market may decline at

beginning of the year, short-term recovery from the second quarter, but then

returned to its place of origin. Thus, FY2012 is a more difficult year for investors.

250

300

350

400

450

500

550

VNINDEX 2012 Lower band Upper band


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DISCLAIMER:

The information, statements, predicts in this report including individual comments are based on reliable

sources of information. The statements in this report based on detailed and careful analysis. Our

subjective opinions are appropriate in the given reporting period. Any opinions or judgments in the

report can be changed without prior notification.

This report is to provide information and does not intend to advise readers to buy, sell or hold any

securities. Mirae Asset Securities (MAS) will not be liable for all or any damage or event which is

considered damages for the use of all or any information or comments of this report.

The report is a property of MAS and under copyright protection. Infringement of copy, change and

reprint of the report without permission of MAS is illegal. MAS owns the copyright on the report.

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