SSI INSTITUTIONAL SALES MARKET OUTLOOK December 2011 STRICTLY CONFIDENTIAL
2 TOPICS Country Overview………….………………………………. 3 Declining Inflation ………………………………………….. 8 Prudent Monetary Policy to reduce Interest Rates…….. 13 Currency Reform to stabilize the VND…………..........… 10 Vinashin ………………………………….. ...............................14 Long Term Outlook ……................................................... 17 SSI Saigon Securities Inc., Institutional Sales
3 COUNTRY OVERVIEW Macro Economic Improvements after WTO: Strong Demographics: Young population (88 million+1million/year)/Urbanization GDP = US$119 billion (2011E), GDP/Capita doubled since joining WTO (2006) External Debts:US$49.3 billion* (42% of GDP), mainly low cost ODAs (US$30bn) SBV Forex Reserves: US$15.2 billion**- Stable Low Debt Service Ratio: *3.2% of Exports (*Ref: MOF Sept 2011) (**Ref: ADB June 2011) 70.0 64 60.0 FDI Disbursements (USD billion) 50.0 FDI Commitments (USD billion) 40.0 30.0 23 20 19 20.0 12 11 11 10 9 8 8 10.0 4 4 3 3 2 0.0 2004 2005 2006 2007 2008 2009 2010 YTD 10/11 Source: GSO, SSI SSI Saigon Securities Inc., Institutional Sales
4 COUNTRY OVERVIEW Continued but declining Foreign Direct Investment Flows YTD to Oct 2011, disbursed FDIs: +1% yoy (US$9.1bn), registered FDIs: -22% yoy (US$11.27 bn in 861 projects) Nike Vietnam : No 1 shoe manufacturer ( 37%), surpassing China (36%), since 2010. First Solar Vietnam Manufacturing Co. Ltd (US$1 billion). Jaks BOT 1,200 MW power plant in Hai Duong (US$2.26 billion). Nestle to build $270 million Coffee Factory in Dong Nai, increase sourcing of coffee from local farmers and produce Nescafe products for local and exports, starting in 2013. Source: GSO, SSI SSI Saigon Securities Inc., Institutional Sales
5 COUNTRY OVERVIEW Stable Political Regime and new young Cabinet: 3.6 million members in Vietnam Communist Party (VCP ) 11th Party Congress (1400 delegates): held in Jan 2011 (every 5 years) Central Committee (160 members) appointed at Congress Politburo appointed by Central Committee (14 members- include 4 new) General Secretary of VCP: Mr. Nguyen Phu Trong National Assembly (493 elected deputies): highest organ of law making power appoints the President, the PM, Chief Justice, Supreme Inspector and the Cabinet President of National Assembly: Mr. Nguyen Sinh Hung President: Mr. Truong Tan Sang Prime Minister: Mr. Nguyen Tan Dung Cabinet: Deputy PMs, Ministers, SBV Governor, Commission Heads (21) Source: www.Info.vn SSI Saigon Securities Inc., Institutional Sales
6 MACRO OVERVIEW Economic Slowdown in 2011 Slow GDP Growth: +5.8% actual (YTD Q3 2011) Slow Retail Sales and Industrial Production Slow Credit Growth(2011 Est.): +12%(+10.2% in VND/+18.7% in FX); M2: +10% Vietnam GDP Growth YoY 10% 8.5% 8.4% 9% 8.2% 8.2% 7.6% 7.8% 8% 7.4% 6.78% 7.9% 7% 7.2% 6.16% 5.76% 6.18% 6% 6.5% 5.32% 5% 5.60% Real GDP Growth Annual % 4.62% 4% 3.90% 3% 3.14% 2% 2Q054Q052Q064Q062Q074Q072Q084Q081Q094Q092Q104Q102Q11 Source: GSO, SSI, Citibank SSI Saigon Securities Inc., Institutional Sales
7 MACRO OVERVIEW Improved Trade Deficit and Balance of Payments Improved Trade Deficit: - US$ 8.9 billion (YTD 11/2011, 10% less than last year) Balance of Payment: +US$3.1 billion (2010:-$3.1 billion; 2009:-US$8.8 billion) Manageable Public Debts: US$56.4 billion (56% of GDP), of which 56% in ODAs Trade Deficit 200.0 18.0 17.5 Exports (USD bn) Imports and Exports Value (USD bn) 180.0 16.0 160.0 14.0 12.4 Imports (USD bn) 140.0 12.4 Trade Deficit (USD bn) 12.0 120.0 10.0 12.2 Trade Deficit (USD bn) 10.0 100.0 8.0 80.0 5.5 4.6 6.0 60.0 4.8 4.0 40.0 2.0 20.0 0.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011E Source: GSO, SSI, Citibank SSI Saigon Securities Inc., Institutional Sales
8 DECLINING INFLATION 26.8% 30% CPI declined with lower Credit Growth 27.9% CPI 12 months 25% 23.0% 20% 19.9% 19.4% 19.8% Headline CPI:17.5% up to November 2011 (19.4% y-o-y) 19.4% 11.7% 15% 12.6% 9.5% 11.3% 13 . 9% 6.8% 10% 8.8% Core CPI: 13% 8.7% 6.5% 3.9% 7.8% 5% 8.9% 6.6% 2.4% 0% Main causes of High Inflation in 2011: Food Inflation (40% of CPI): +22.8% yoy (up to Nov 2011) • Fragmented Farm Industry • Inefficient food distribution logistics • Capital shortage of farmers 2011 One-time Events : • Currency Depreciation (+9%), • End of Fuel subsidies (+18%) • Electricity Rate Increase (+15%). Results of Relaxed SBV Monetary Policy since 2006 Inefficient & still dominant State Sector (Low ICOR) Source: GSO, Citibank, SSI SSI Saigon Securities Inc., Institutional Sales
9 WHEN SBV WILL DRIVE INTEREST RATES DOWN ? Harsh Restrictive Monetary Policy in 2011: SBV Policy Rates : • OMO Repo Rate: 14% (+400 bps since 2010) • Refinancing Rate: 15% (+500 bps) • Discount Rate: 13% • Base Rate: 9% SBV to drive down Policy Rates by 2% by Q2 2012 High Loan Rates: • VND Production Loans: 17-19% • VND Non-Production Loans: 25% and above • USD Loans: 8% and above Negative Impacts on Banking System in 2011 : Banks Cut Access to Credits: Loan Growth slowed Rising NPLs in Banking Sector (to 5% by Year End) Real Estate Bubble Burst, pulling down Prices Shortage of Liquidity among small Banks, driving up Interbank Money Market Interest Rates Source: GSO, Citibank, SSI SSI Saigon Securities Inc., Institutional Sales
10 CURRENCY POLICY REFORM To stabilize the VND Unofficial VND/USD FX Rate converged to Official FX Rate in March 2011 SBV reportedly sold USD 2.5 billion in 2011 to support the VND Source: Reuters, December 9, 2011 SSI Saigon Securities Inc., Institutional Sales
11 2011 CURRENCY RETURN VND/USD compared to other selected emerging market currencies CURRENCY RETURNS OF SELECTED CURRENCIES COMPARED TO VIETNAM DONG 2011 YTD Spot 2011 YTD Spot Currency Return % Currency Return % Currency versus USD versus USD South African Rand -20.8% Turkish Lira -17.8% Peruvian New Sol Indian Rupee -15.5% Chinese Renminbi Polish Zloty -14.7% Venezuela Bolivar Mexican Peso -11.0% Philippine Peso Brazilian Real -10.7% Chilean Peso -9.7% Indomesian Rupiah Vietnam Dong -7.2% Columbia Peso Argentina Peso -7.1% South Korean Won Czech Koruna -4.3% Russian Ruble Thai Bhat -4.1% Thai Bhat Russian Ruble -3.9% South Korean Won -2.8% Czech Koruna Columbia Peso -1.4% Argentina Peso Indomesian Rupiah -0.7% Vietnam Dong Philippine Peso -0.2% Chilean Peso Venezuela Bolivar 0.0% Brazilian Real Chinese Renminbi 4.0% Peruvian New Sol 4.1% Mexican Peso Source: Bloomberg December 16, 2011 Polish Zloty Indian Rupee Turkish Lira South African Rand -25% -20% -15% -10% -5% 0% 5% 10% Source: Reuters, December 16, 2011 SSI Saigon Securities Inc., Institutional Sales
12 AUSTERE MONETARY & FISCAL POLICY Government Resolution No 11 (February 24/2011) SBV Monetary Policy (Tightening then Prudent) Directive No 1: • Reduce Credit Growth: Max.+20%; M2: +16% • Non Production Credits: Max 16% of all O/S Credits Increase of Policy Interest Rates: OMO:14%, Refinancing Rate:15% Bank Deposit Ceiling Rates: 14% (6% below 1 mo); USD Depos: 2% USD Deposit Required Reserve Ratio: +1% to 8% SBV Currency Reform: More Market oriented Currency Regime Control/Clamp Down of unofficial forex markets Fiscal Policy Tightening : 10% Reduction of Government Expenditures Freeze non-necessary Government Projects 2011 Budget Deficit : reportedly on target to reduce to 5% GDP SSI Saigon Securities Inc., Institutional Sales
13 REFORM PLAN IN FINANCIAL SECTOR IN 2012 Prudent SBV Monetary Policy Credit Growth: • Relax Credit Growth: Max.+15-17% • M2 Growth: Max. +14-16% A Credit Growth Quota for each Bank, based on bank’s financial strength Reduce Policy Interest Rates: in steps in H1 2012 Focused Credit Easing: Facilitate access to credit for Farmers, Exporters and SMEs SBV Currency Reform: Intensify Inspections of Unofficial Foreign Currency Market Reduce impact of Gold demand/supply on VND/USD exchange rate Continuation of flexible Currency Policy to reduce Imports and increase Exports Banking/Securities Market Restructuring Resolve issues of illiquid and weak small banks Accelerate Privatization of State-Owned Commercial Banks and SOEs SOEs to dispose Finance/Securities Businesses, Increase Efficiency/Profitability New Securities Regulations to strengthen securities markets SSI Saigon Securities Inc., Institutional Sales
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