vietnam 2014 - will the tiger roar again?

8/14/2019 Vietnam 2014 - will the tiger roar again?

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PUBLIC

Vietnam 2014

Will the Tiger roar again?October 2013

Sumit Dutta

Chief Executive Officer

HSBC Vietnam


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Young, educated, and hardworking

population.

63% of the population under 35, median

age of 27. Below China (35) and Thailand(34).

94% literacy rate. Ahead of Indonesia

and Malaysia.

Official poverty rate reduced from 58%

(1993) to single digits today

Trend towards urbanisation with 30% of

the population now live in cities.Expected to grow to 40% by 2020.

Young banking industry opened up only

since 1995.

A young country with significant upside potential

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Vietnam labour cost

% of population with access to banking system


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How Vietnam has progressed over the years

GDP growth consistently over 5%

Exports has grown from USD72B in 2010 toUSD114B in 2012 and reached USD 96B in3Q13.

Trade balance reasonable and on an improvingtrend

FEX reserves grew 200% over a two year period

VND was stable against the USD

3 month VNIBOR decreased from double digit ofover 13% to c.5% in 2013.

Vietnam 2010 2011 2012 Q3 2013

GDP (%) 6.8 5.9 5.03 5.1

CPI (y-o-y,%) 9.1 18.6 6.8 6.3

Exports (%) 26.4 33.3 18.3 15.7

Imports (%) 21.2 24.7 7.1 15.5

Trade balance(USD bln)

-12.6 -9.5 0.3 -0.1

FEX reserves(USD bln)

12.9 11.5 20 30

Key data

Vietnams progression over the years

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Not much to cheer about in 2013

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Credit growth between 35%-55% per annum from 2007-2001

Much of which went into speculative industries

Real estate bubble

Volatility in gold and the stock market

High inflation

Excessive interest rates leading to companies going bust

The fallout is still being experienced today

The ramifications of unbridled growth

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Drop in customer confidence

Decreased domestic consumption

Reduction in investment

Interest rates low but corporates reluctant to borrow

Bad debts in the banking system

Not much progress on SOE reform

The recent environment

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Credit growth on a downward trend

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Vietnams growth historically driven by credit Credit growth in 2013 at 6.5% versus target at 12% (2012: 9%)

Source: KPMG Vietnam Banking Survey 2013


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NPLs on the rise

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True picture could be worse Causes include lack of corporate governance, transparency and poor credit models

Source: KPMG Vietnam Banking Survey 2013; SBVs Official Data

2.9%

3.2%3.0%

2.0%

3.5%

2.2%

2.6%

3.4%

4.08%

4.67%

0.00%

0.50%1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Dec2004

Dec2005

Dec2006

Dec2007

Dec2008

Dec2009

Dec2010

Dec2011

Dec2012

Apr 2013

NPL Rate


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Vietnam real estate an example of condominiums

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Average selling prices for condos in HCMC and Hanoi on downward trend New launches have slowed significantly since 2010

Source: CBRE

Ho Chi Minh City

Hanoi

Average selling price (USD/sqm) Condominium Launch, HCMC

Secondary Price Change New Launch Supply (Units)


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Vietnam stock market 2009-2013

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Still below September 2009 high Improvement seen during the last nine months

Source: Bloomberg


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Consumer confidence dropped in 2012 major concerns arethe economy, inflation, job security, and health

Source: AC Nielsen 2013

2010-2012 Vietnam Consumer Confidence Index Major concerns over the next six months

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What are consumers spending their money on?

Source: AC Nielsen 2013 PUBLIC

How to utilize spare cash after covering essential living expenses (as of Q4 2012)

30% 29% 28% 27%24%

15%

6% 5%

11%

0%

10%

20%

30%

40%

50%

60%

70%

60%


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But Vietnam looks rosier from afar

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VND stability vis a vis USD

20,200

20,400

20,600

20,800

21,000

21,200

21,400

22-Aug-11 22-Nov-11 22-Feb-12 22-May-12 22-Aug-12 22-Nov-12 22-Feb-13 22-May-13 22-Aug-13

Official Floor Ceiling Market

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Third best performing currency in Asia (YTD August 2013)

Country

Best Performing Currency vs USD YTD

August 2013

China 1.79%

Hong Kong -0.07%

Vietnam -1.5%

Taiwan -3.22%

Korea -4.71%

Singapore -4.81%

Thailand -5.43%

New Zealand -6.27%

Philippines -7.92%

Malaysia -8.83%

Japan -11.17%

Indonesia -12.68%

Australia -14.50%

India -15.47%

Source: Bloomberg PUBLIC


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Other positive macroeconomic trends

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Inflation is expected to stay contained in the

next 3 monthsFalling interest rates (3 month VNIBOR)

Source: HSBC, Markit


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Vietnam five year CDS at all-time low

PUBLICSource: Reuters


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FDI Strong and sustainable flows to Vietnam

PUBLICSource: HSBC, Markit


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Top 10 active FDI by business sector(Over last 4 years)

Source: Foreign Investment Agency

Manufacturing56%

Real Estate17%

Acommodation& Food Service

2%

Construction4%

Electricity, Gas, andAC Supply

8%Others13%


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(USD bio)

Top FDI by country(Over last 4 years)

Source: Foreign Investment Agency

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Japan Singapore SouthKorea

HongKong

BVI Taiwan China US Malaysia Others


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Competitive and attractive to overseas investors

PUBLICSource: Internet


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In Vietnams current development stage who is thriving?

Source: AC Nielsen 2013 PUBLIC


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Beverages Favorable demographic shifts and rising affluence provide

significant scope for growth

Alcoholic drinks value sales CAGR, 2012 to 2017: +13.5%.

Soft drinks value sales CAGR, 2012 to 2017: +13.7%.

Pharmaceutical

Local market valued at US$2.4bn in 2011

Expected to grow to US$5.4bn by 2016, equating to acompound annual growth rate (CAGR) of 17%

Education Rapid growth of private, technical, linguistic and secondary

education

Number of students has risen 95% from 2006-2011 and percapita spending has increased 33%

Who is thriving?

PUBLICSource: BMI


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Agriculture and commodity

Coffee production growth to 2016/17: 28% to 29.1mn bags

Poultry production growth to 2016/17: 27% to 954,000tonnes

Milk production growth to 2015/16: 24% to 398,000 tonnes

Personal Care

Consumers, especially those living in urban areas, are

gaining exposure and have increasing demand for beautyand personal care products. Value growth and productavailability are both expected to be strong.

Segment growth of 60% from 2006-2010

Who is thriving?

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Top export locations

2010 USDb 2011 USDb% Growth

(YoY) 2012 USDb % Growth (YoY)

1 US 14.2 US 16.7 17.5 EU 20.3 22.5

2 EU 11.3 EU 16.5 45.4 US 19.6 15.6

3 ASEAN 9.1 ASEAN 13.6 31.5 ASEAN 17.3 27.2

4 JAPAN 7.7 CHINA 10.8 47.6 JAPAN 13.1 21.4

5 CHINA 7.3 JAPAN 10.6 37.8 CHINA 12.2 10

Top import locations

2010 USDb 2011 USDb% Growth

(YoY) 2012 USDb % Growth (YoY)

1 CHINA 17.9 CHINA 24.6 37.4 CHINA 28.9 17.6

2 ASEAN 14.5 ASEAN 20.9 44.1 ASEAN 21.0 0.3

3 KOREA 8.7 KOREA 13 49.4 KOREA 15.6 18.4

4 JAPAN 8.1 JAPAN 10.2 25.9 JAPAN 11.7 12.2

5 EU 5.5 EU 7.5 36.36 EU 8.8 13.3

Top trade partners


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ASEAN Economic Community (AEC)

PUBLICSource: AC Nielsen 2013, ASEAN Org.

Accelerate regional economic integration by 2015

Nine countries include: Brunei, Cambodia, Indonesia,Laos, Philippines, Malaysia, Myanmar, Singapore,Thailand, and Vietnam

Objectives:

A. Single Market and Production Base

Competitive Economic Region

Equitable Economic Development

Integration into the Global Economy

The AEC will transform ASEAN into aregion with free movement of goods,

services, investment, skilled labour, and

freer flow of capital

-ASEAN Organization


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ASEAN seen as a regional/single market of c.600 million people

Increased investment and funds from within ASEAN

Enhanced focus on SMEs

Greater tourism opportunities

Hard and soft infrastructure development are priorities

Businesses may pursue sales opportunities across the region

Focus on cost efficiencies by integrating/centralizing operations

M&A activity within SEA e.g. Siam Cement Group, CP Group acquiring businesses inVietnam

IMPACTS OF AEC

PUBLICSource: Business in Asia


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Trans-Pacific Strategic Economic Partnership (TPP)

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Proposed regional FTA under negotiationbetween US and 10 other countries

So far 11 countries included: Australia, Brunei,Canada, Chile, Malaysia, Mexico, NewZealand, Peru, Singapore, US, and Vietnam

Objectives: A. Achieving a comprehensive and high

standard regional FTA thateliminates/reduced trade barriers andincreases opportunities for US trade and

investment B. Allowing US to play a role in developing

a broader platform for trade liberalizationin Asia-Pac

C. Providing US with an opportunity toestablish new rules on emerging tradeissues

Vietnam, given its significant populationand quickly growing economy, may hold the

greatest potential for increasing economic

relations with the US moving forward

-US Congressional Research Service

Source: US Congressional Research Service


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IMPACTS OF TPP

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Contribute to Vietnams GDP growth

Strong trade with US

Capturing greater exports in manufacturingindustries where Chinas comparativeadvantage in fading

Overall boost to exports

Higher income enabling reinvestment andmore rapid growth

Source: Amcham Vietnam, The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment

Peter A. Petri, Michael G. Plummer, and Fan Zhai


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HSBC Forecast for 2014

PUBLICSource: Business in Asia

HSBC's key Vietnam Economic Forecast 2013F 2014F

GDP (%) 5.2 5.4

GDP per capital (USD) 1,750 1,971

CPI (end year, %) 6.7 8.3

Trade balance (USD bn) +0.6 -0.7

Intl FX reserves (USD bn) 30 35

USD/VND (end of period) 21,250 21,500

Policy rate (OMO, end year, %) 6.0 7.0


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The way forward what does this mean to me?

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SOEs will continue to be a drag on growth

Banking systems NPLs will take time to resolve

Real estate market will improve slowly

Inflation is expected to remain contained

VND expected to remain stable though small devaluations might happen

FDI inflows should continue

Exports expected to flourish and grow

Key issue is customer confidence if sentiment improves, the recovery will be quicker.

Do not expect miracles in 2014

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Liquidity is key there could be opportunities for cash rich companies

Continue to grow market share when the tiger wakes up, you need to be ready!

Review your business model and be flexible to cope with changing trends

Great opportunity to restructure to become better/stronger

Actively managing market (fex and interest rates) and counterparty risks

Choose the right banking partners

Surviving and thriving in 2014

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Thank you!

vietnam 2014 - will the tiger roar again?

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