EXPLORING INSTITUTIONAL INVESTMENT OPPORTUNITIES IN VIETNAM Dr. Tuan Le Anh Deputy CIO, Head of Research, Portfolio Manager Dragon Capital
MACRO AND MARKET PERSPECTIVE 2
Vietnam: COVID-19 Containment PEAK CASE PREDICTION FIRST WAVE: CONTAINED SECOND WAVE: SAME AGAIN? • • 13 Jan to 23 Apr • 25 Jul to present (11 Aug) Peak total case: Lower than one day • • Strict lockdown, extensive testing in other countries Instant resumption of tracking • 415 cases, 395 recovered • 432 cases, 04 recovered • 106 local, 309 imported, 0 deaths • 389 local, 43 imported, 13 deaths • • 75,969 quarantines 182,267 quarantines Worst 3,500 Local 495 Base 2,500 Imported Best 1,500 106 Current 841 NO NEW LOCAL CASES IN 99 DAYS 352 309 FULL RE-OPENING OF NORMAL SOCIAL & ECONOMIC LIFE 25 Jul Aug 15 Aug 13 Jan 1 Apr -23 Apr Spreading of local cases MOH predicts that Vietnam New case in First Social distancing ex-Danang will reach its peak cases Danang at case starts height of arrives Danang 272 Shut-down all holiday VIETNAM’S SECRET in VN Nearby 74 unnecessary season Others 29 ► EXPERIENCE FROM SARS business Saigon 8 Tourist ► COMMUNITY INFORMATION Masks required Hanoi 6 evacuations ► AGGRESSIVE TESTING / TRACING in public places Some soft lockdowns ► AGGRESSIVE QUARANTINING may be imposed Source: Vietnam News Agency, Ministry of Health, DC
World Leader in COVID-19 Testing NUMBER OF COVID-19 TESTS PER CONFIRMED CASE, 6 MAY 2020 Vietnam 967 Taiwan 150 New Zealand 141 Australia 101 South Korea 60 South Africa 37 Malaysia 35 Russia 30 Thailand 29 India 26 Norway 23 Portugal 18 18 Austria Germany 17 Philippines 13 Japan 12 Italy 11 Bangladesh 9 Indonesia 8 7 Singapore Sweden 7 United States 6 France 6 United… 5 0 100 200 300 400 500 600 700 800 900 1000 Source: Our World in Data; European CDC
1. Economy Weakens Under COVID-19 BACK TO WORK – VINFAST BACK TO TRAFFIC JAMS THU THIEM BRIGDE 2 – EXPECTED TO BACK TO WORK – SAIGON METRO BEN INAUGURATE IN DEC 20 THANH
1. Economy Weakens Under COVID-19 VIETNAM 2Q20 GDP: LOWEST IN 20Y VIETNAM PMI 2016-20 60 CN VN BUT, AMONG POSITIVE COUNTRIES 55 KOR INDO 50 GER SGN 45 BEL POR 40 PHIL ITA 35 FRA US 30 % Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 Mar-20 Jul-20 (35) (30) (25) (20) (15) (10) (5) - 5 AVERAGE INCOME FELL IN 2Q20 UNEMPLOYMENT RATE Total Agriculture Industries Services 2.9 % % - 2.7 Urban: 3.6% (1.0) Rural: 1.6% (2.0) 2.5 (3.0) -2.8 2.3 (4.0) 2.1 (5.0) -5.1 -5.1 (6.0) 1.9 (7.0) 1.7 (8.0) -7.3 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 (9.0) Source: GSO
2. But Macro Stability Prevails BIGGEST EQUITY OUTFLOW EVER AND… …LOW RECEIPTS FROM TOURISM & REMITTANCE 2.25 mn visitors 2.00 2020 (689) 1.75 1.50 2016 (325) 1.25 1.00 2011 (68) 0.75 0.50 2008 (117) 0.25 0.00 (850) (650) (450) (250) (50) Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 $m BUT: RECORD-HIGH FOREIGN RESERVES AND… … CURRENCY PERFORMANCE AMONG BEST YTD 100 0.94 $bn 85.3 90 1.00 80.0 77.2 80 1.06 71.5 70 1.12 63.3 60 1.18 50 1.24 40 1.30 30 1.36 20 1.42 10 1.48 1.54 0 ` Dec-19 2016 2017 2018 2019 2020 Source: FiinPro, BBG, DC
2. But Macro Stability Prevails MUTED INFLATION DESPITE RECORD PORK PRICE CREDIT GROWTH (YOY) STILL POSITIVE 16 23 14 21 12 19 10 17 8 15 6 13 Target 4% 4 11 2 9 - 7 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 SBV CUTS POLICY RATE BY 100-125 BPS… … AND LOWERS LENDING INTEREST RATE 7 11.0 Beginning of 2020 After 17 Mar 2020 6 10.5 After 13 May 2020 After 1st Jul 2020 5 10.0 4 9.5 3 9.0 2 Financing support to 8.5 businesses 1 8.0 - Apr-15 Jan-16 Oct-16 Jul-17 Apr-18 Jan-19 Oct-19 Jul-20 Discount rate OMO rate < 1 Month deposit rate < 6 Month deposit rate
2. But Macro Stability Prevails FISCAL DEFICIT - PLENTY OF ROOM PUBLIC DEBT/GDP: NO NEED TO WORRY 6 65 1.3 % % 2.8 3.6 63 5 6.6 61 8.9 10.7 4 59 57 3 63.7 55 62.2 61.4 2 53 58.4 56.1 51 54.3 1 49 0 47 2015 2016 2017 2018 2019 6M20 2020F 2015 2016 2017 2018 2019 2020F ESPECIALLY WHEN BORROWING COST AT RECORD LOW PUBLIC INVESTMENT UP 20% 1H20 DESPITE COVID-19 8 7.0 $bn % 5y- Gov Bond Yield 7 6.5 10y- Gov Bond Yield 15y- Gov Bond Yield 6 6.0 5.5 5 5.0 4 4.5 3 4.0 2 3.5 1 2015 2016 2017 2018 2019 2020 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Sep-19 Jun-20
3. Benefiting From External Factors SHIFT IN GLOBAL SUPPLY CHAIN: VIETNAM IS THE MAIN WINNER
3. Benefiting From External Factors SHIFT / PLAN TO SHIFT TO VIETNAM DUE TO COVID FDI VIETNAM 7M20: NOT BAD 35 $bn 7M FDI Registered 7M FDI Disbursed 30 25 22.9 20.2 20 21.9 18.8 SOME COUNTRIES SUBSIDIZED COMPANIES TO MOVE TO VN 15 12.9 Hard disk drive manufacturers Medical gear and personal protective equipment 10 10.6 10.1 9.8 9.0 8.6 Electronic devices providers 5 Original technologies and products provider 0 Chemical corporation 2016 2017 2018 2019 2020
3. Benefiting From External Factors US 2020 ELECTION: POTENTIAL POSITIVE SURPRISE Implied Winning Prob Trump Biden 33% 61% • Biden emphasized the need (July debate) to join TPP to compete with China Huge benefit for Vietnam if it becomes reality • Biden seeks to decrease bilateral and military tension against China Unlikely to significantly revert the supply shift from China to other countries
LONG TERM SUPPORTS AND PROBLEMS 13
Supported by Long Term Drivers NUMBER 1: MIDDLE CLASS IS RAMPING NUMBER 2: PRIVATE SECTOR OVERTOOK SOES – UP…HUGE CONSUMPTION BETTER EFFICIENCY 70 2020 SOE Sector 65 23.0 59.8 23.5 Private Sector 60 21.6 55 2012 50 16.2 45 46.0 45.7 40 43.3 17.6 40.0 35 38.4 38.1 12m 30 33.2 33m 31.0 25 20 22.6 15 10 5 0 2001 2005 2014 2018 2019 • Air Travel: 14m flights in 2011 52m in 2018 • SOEs : commander of the economy until 2011 • Smartphone : 30% in 2012 86% in 2018 • Private Sector: double its contribution whilst SOEs reduces by half • Salary: 1000+ listed companies $950/mo average for • 1.5mil employees Improving Productivity : as private sector takes control
Supported by Long Term Drivers NUMBER 3: GLOBAL SUPPLIER- THE BENEFIT OF NUMBER 4: EVOLVING CAPITAL MARKET REDUCES GETTING LARGER SCALE RELIANCE ON BANKS 550 300 GDP 500 253 Market Cap 237 450 250 Total Credit 211 400 350 200 174 166 300 148 261 150 250 238 264 220 243 198 200 186 184 214 100 150 177 162 150 100 IMP 50 50 0 - 2014 2015 2016 2017 2018 2019 12 13 14 15 16 17 18 19 • • Global Supplier: 200% trade / GDP indicates Bank Centric Economy: VN used to rely 100% on Vietnam’s transformation into a global manufacturing bank credit to fuel the economy powerhouse • Evolving Capital Market: the combined equity and • Scale Matters: unit production cost declines thanks to corporate bond markets almost as important as the economy of scale, much overweighting the increase bank credit wages
Infrastructure Problems STATE BUDGET MONEY AT SOCBs 16 15 14.1 13.7 14 13.1 Funds Pile up as Spending Stalls 13 12 11 10 9 8 6.8 7 5.9 6 5.3 5 4.4 4 3.2 3.0 3 2 1 - 1H19 2011 2012 2013 2014 2015 2016 2017 2018 1H 2019
Summary Covid19 Situation: Serious but Controllable • Second wave is likely to peak in Aug. Selective social distancing is applied. Impact on the Economy: Weakening • 2020 GDP growth is 1-2%, revising down from 3.5% pre-second wave • Highest unemployment and underemployment in 11 yrs. Impact on Stability: Improving • Muted on inflation, record high currency reserve • Good liquidity in the system and good stance on fiscal and debt Impact from External Factors: Benefiting • Major supply shift to Vietnam • US election may benefit Vietnam Long Term Supporting Factors and Problems: More tailwinds and headwinds • Middle class, private sectors, and manufacturing powerhouse drive the economy • Infrastructure is lagging behind
MARKET PERSPECTIVE 18
Market During COVID-19 NET FOREIGN FLOWS, 2020 100 1,000 $m VNI 80 Net Foreign Flow (LH) 950 VN Index (RH) 60 900 40 20 850 0 800 -20 UP 28% FROM -40 750 BOTTOM DOWN 33% -60 STILL DOWN 700 13% YTD -80 PRE-COVID POST-COVID -100 650 3-Jan 2-Feb 3-Mar 2-Apr 2-May 1-Jun 1-Jul 31-Jul Source: Bloomberg, DC
Who Drives the Market Down / Up RETAIL MARGIN LENDING INVESTORS NET FLOW DURING COVID-19 (FEB-AUG) 1,000 2.5 $m 832 $bn 800 2.22 600 2.0 DOWN 23% 400 1.69 200 1.5 106 0 -200 1.0 (123) -400 -600 0.5 -800 (834) -1,000 0.0 Retail Management Local Foreign Dec 2019 Aug 2020 Investors & Treasury Institutions Investors Source: FiinPro, DC
2020 Earnings UNADJUSTED TOP-60 NPAT, 2020-21F 30 % % 27.5 25 20 15 10 5 0 -5.0 -5 -10 -12.5 -14.0 -15 -17.0 Full Year -20 -24.9 -25 -30 1Q20 2Q20 3Q20 4Q20 2020 2021
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