HSBC updates on macroeconomics of Vietnam in 2014

1. Vietnam 2014
Will the Tiger roar again?
October 2013
Sumit Dutta
Chief Executive Officer
HSBC Vietnam
PUBLIC

2. A young country with significant upside potential
Vietnam labour cost
• Young, educated,
population.
and
hardworking
• 63% of the population under 35, median
age of 27. Below China (35) and Thailand
(34).
• 94% literacy rate. Ahead of Indonesia
and Malaysia.
% of population with access to banking system
• 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.
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3. Vietnam’s progression over the years
How Vietnam has progressed over the years
Key data
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
• FEX reserves grew 200% over a two year period
Trade balance
(USD bln)
-12.6
-9.5
0.3
-0.1
• VND was stable against the USD
FEX reserves
(USD bln)
12.9
11.5
20
30
• GDP growth consistently over 5%
• Exports has grown from USD72B in 2010 to
USD114B in 2012 and reached USD 96B in
3Q13.
• Trade balance reasonable and on an improving
trend
• 3 month VNIBOR decreased from double digit of
over 13% to c.5% in 2013.
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4. Not much to cheer about in 2013
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5. The ramifications of unbridled growth
• 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
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6. The recent environment
• 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
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7. Credit growth on a downward trend
• Vietnam’s 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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8. NPLs on the rise
• True picture could be worse
• Causes include lack of corporate governance, transparency and poor credit models
NPL Rate
5.00%
4.67%
4.50%
4.08%
4.00%
3.2%
3.50%
3.5%
3.4%
3.0%
3.00%
2.50%
2.9%
2.6%
2.00%
2.2%
2.0%
1.50%
1.00%
0.50%
0.00%
Dec
2004
Dec
2005
Dec
2006
Dec
2007
Dec
2008
Dec
2009
Source: KPMG Vietnam Banking Survey 2013; SBV’s Official Data
PUBLIC
Dec
2010
Dec
2011
Dec
2012
Apr 2013

9. Vietnam real estate – an example of condominiums
• Average selling prices for condos in HCMC and Hanoi on downward trend
• New launches have slowed significantly since 2010
Ho Chi Minh City
Condominium Launch, HCMC
Average selling price (USD/sqm)
Hanoi
New Launch Supply (Units)
Secondary Price Change
Source: CBRE
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10. Vietnam stock market 2009-2013
• Still below September 2009 high
• Improvement seen during the last nine months
Source: Bloomberg
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11. Consumer confidence dropped in 2012 – major concerns are
the economy, inflation, job security, and health
2010-2012 Vietnam Consumer Confidence Index
Source: AC Nielsen 2013
PUBLIC
Major concerns over the next six months

12. What are consumers spending their money on?
How to utilize spare cash after covering essential living expenses (as of Q4 2012)
70%
60%
60%
50%
40%
30%
30%
29%
28%
27%
20%
24%
15%
11%
10%
6%
0%
Source: AC Nielsen 2013
PUBLIC
5%

13. But Vietnam looks rosier from afar
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14. VND stability vis a vis USD
21,400
21,200
21,000
20,800
20,600
20,400
20,200
22-Aug-11
22-Nov-11
22-Feb-12
22-May-12
Official
22-Aug-12
22-Nov-12
Floor
PUBLIC
Ceiling
22-Feb-13
22-May-13
Market
22-Aug-13

15. 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
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16. Other positive macroeconomic trends
Inflation is expected to stay contained in the
next 3 months
Source: HSBC, Markit
Falling interest rates (3 month VNIBOR)
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17. Vietnam five year CDS at all-time low
Source: Reuters
PUBLIC

18. FDI – Strong and sustainable flows to Vietnam
Source: HSBC, Markit
PUBLIC

19. Top 10 active FDI by business sector
(Over last 4 years)
Electricity, Gas, and
AC Supply
8%
Others
13%
Construction
4%
Acommodation
& Food Service
2%
Manufacturing
56%
Real Estate
17%
Source: Foreign Investment Agency
PUBLIC

20. Top FDI by country
(Over last 4 years)
(USD bio)
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
Japan
Singapore
Source: Foreign Investment Agency
South
Korea
Hong
Kong
BVI
PUBLIC
Taiwan
China
US
Malaysia
Others

21. Competitive and attractive to overseas investors
Source: Internet
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22. In Vietnam’s current development stage who is thriving?
Source: AC Nielsen 2013
PUBLIC

23. Who is thriving?
•
•
Pharmaceutical
• Local market valued at US$2.4bn in 2011
• Expected to grow to US$5.4bn by 2016, equating to a
compound annual growth rate (CAGR) of 17%
•
Source: BMI
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%.
Education
• Rapid growth of private, technical, linguistic and secondary
education
• Number of students has risen 95% from 2006-2011 and per
capita spending has increased 33%
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24. Who is thriving?
•
•
Source: BMI
Agriculture and commodity
• Coffee production growth to 2016/17: 28% to 29.1mn bags
• Poultry production growth to 2016/17: 27% to 954,000
tonnes
• 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 beauty
and personal care products. Value growth and product
availability are both expected to be strong.
• Segment growth of 60% from 2006-2010
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25. Top trade partners
Top export locations
2010 USDb
% Growth
(YoY)
2011 USDb
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
% Growth
(YoY)
2011 USDb
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
PUBLIC
25

26. ASEAN Economic Community (AEC)
“The AEC will transform ASEAN into a
region with free movement of goods,
services, investment, skilled labour, and
freer flow of capital”
-ASEAN Organization
• 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
Source: AC Nielsen 2013, ASEAN Org.
PUBLIC

27. IMPACTS OF AEC
•
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 in
Vietnam
Source: Business in Asia
PUBLIC

28. Trans-Pacific Strategic Economic Partnership (TPP)
“Vietnam, given its significant population
and 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
• Proposed regional FTA under negotiation
between US and 10 other countries
• So far 11 countries included: Australia, Brunei,
Canada, Chile, Malaysia, Mexico, New
Zealand, Peru, Singapore, US, and Vietnam
• Objectives:
• A. Achieving a comprehensive and high
standard regional FTA that
eliminates/reduced trade barriers and
increases opportunities for US trade and
investment
• B. Allowing US to play a role in developing
a broader platform for trade liberalization
in Asia-Pac
• C. Providing US with an opportunity to
establish new rules on emerging trade
issues
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29. IMPACTS OF TPP
• Contribute to Vietnam’s GDP growth
• Strong trade with US
• Capturing greater exports in manufacturing
industries where China’s comparative
advantage in fading
• Overall boost to exports
• Higher income enabling reinvestment and
more rapid growth
Source: Amcham Vietnam, The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment
PUBLIC
Peter A. Petri, Michael G. Plummer, and Fan Zhai

30. HSBC Forecast for 2014
HSBC's key Vietnam Economic Forecast
2013F
2014F
5.2
5.4
1,750
1,971
CPI (end year, %)
6.7
8.3
Trade balance (USD bn)
+0.6
-0.7
Int’l FX reserves (USD bn)
30
35
USD/VND (end of period)
21,250
Policy rate (OMO, end year, %)
6.0
GDP (%)
GDP per capital (USD)
Source: Business in Asia
PUBLIC
21,500
7.0

31. The way forward – what does this mean to me?
PUBLIC

32. Do not expect miracles in 2014
• SOEs will continue to be a drag on growth
• Banking system’s 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.
PUBLIC

33. Surviving and thriving in 2014
•
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
PUBLIC

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35. Thank you!
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