Money 360

ISSUE: 95 23 February 2013

MARKET OVERVIEW
The consumer price data for the month of February announced by some provinces was relatively better than expected. However, in order to achieve the target inflation of 6.0% y-o-y for a further interest rate cut, the Government will likely face much challenging issue following the international energy price hike. On the other side, the trade data revised by the General Customs was optimistic as Vietnams trade surplus of goods expanded to USD 776 million in January. Looking ahead, the export growth is expected to remain relatively high following the improvements of some sectors; nevertheless, the import growth might lower, leading to strong surplus of trade balance.

VGB-GGB MARKETS
The primary market appears to be relatively silent in the last week of the year of Dragon and the first week of the year of Snake. However, the State Treasury could achieve 91% of its issuance target; meanwhile, the winning yields remained firm in comparison with ones in previous weeks. Regarding the secondary market, trading slowed down in the first trading week of the year of Snake with total trading turnover amounting only VND 2.7 trillion, dropping 52% against the previous week. The lower trade on this market might be attributable to the lack of bond auction as well as traders cautious sentiments following increased inflationary pressure.

VIETNAM GOVERNMENT EUROBONDS

The Vietnamese CDS spreads tightened slightly this week as the 1Y CDS spread narrowed 1 bps to 65 bps, and the 5Y CDS spread dropped 3 bps to 212 bps. Meanwhile, yields on the Vietnamese international bonds remained firm. Yield on 5Y Eurobond stayed at 3.13%, and 10Y Eurobond yield finished at 4.30%.

MONEY MARKET
The SBV constantly pumped money into the banking system via the open market operation to maintain the liquidity for the Tet preparation. However, it turned to withdraw ample cash from banks after the Tet to ensure the inflation target. The banking data for the first two months of FY2013 indicated modest increase in lending at banks, and relatively strong fund mobilization.

FOREX MARKET
The gap between domestic and international gold prices continued to widen, and the VND/USD exchange rate suddenly increased, leading to rising concerns on the stability of the Dong. However, we do believe in the strength of the Dong as the SBV has enough resources to stabilize the FX market.

CONTENT
MARKET OVERVIEW ......................................................................... 2 VGB-GGB MARKETS ....................................................................... 2 VIETNAM GOVERNMENT EUROBONDS ........................................... 4 MONEY MARKET............................................................................... 4 FOREX MARKET ................................................................................ 6 ABBREVIATIONS ................................................................................ 7
Bloomberg: ACBS <GO> Cao Tan Phat, Market Analyst
+84 8 54 043 054| phatct@acbs.com.vn

ACBS Research Centre

+84 8 5 404 3257 | research@acbs.com.vn

Website: www.acbs.com.vn Bloomberg: ACBS <GO>

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MARKET OVERVIEW
The consumer price data for the month of February announced by some provinces was relatively better than expected. In particular, the Februarys CPI growth in Long An Province and Ho Chi Minh City were officially announced at 1.31% m-o-m, and 1% respectively. Meanwhile, according to some Ministries reports to the Government in its periodical meeting, the nationwide inflation was estimated at 1.3-1.4% m-o-m in February, which is slightly lower than our previous forecast of 1.6-1.7% m-o-m. In fact, investors will have to wait until February 24 to have the final figure on inflation released by the General Statistics Office (GSO). Given the estimate of 1.4%, the Februarys CPI increased by 7.11% y-o-y, or 2.67% YTD; accordingly, with the Government inflation target below 6.81%, the monthly inflation in the coming months should average at around 0.4% m-o-m. Remarkably, as the SBV Governor noted that the interest rate ceiling might decrease further in this year if the inflation finished at about 6% y-o-y, the nationwide monthly inflation will have to average at 0.32% m-o-m in order to back a downward adjustment of interest rate. In fact, a lower inflation in comparison with the previous appears to be more challenging to the Government as the 10-month average inflation was 0.74% m-o-m since the FY2005 and 0.43% m-o-m in the previous year. Besides, the current uptrend of the world fuel price might trigger domestic inflationary pressure in the coming time. As of February 22, the RON92 gasoline price decreased slightly to USD 130 per barrel; meanwhile, its 30-day average price increased to USD 124.65 per barrel. With this level, the gap between the base and retail prices expanded to around VND 526 per liter after drawing the stabilization fund. However, the Ministry of Finance might decide to reduce the import tax by 2 percentage points, and increase the local gasoline prices by VND 200-800 per liter, which in turn will directly push the consumer prices up 0.03-0.1%. Regarding the trade data, the General Customs revised Vietnams trade balance of goods for the month of January. According to this agency, exports of goods picked up USD 1.12 billion, or 10.8% m-o-m to USD 11.47 billion; meanwhile, imports of goods finished at USD 10.69 billion, increasing 8.5%. As such, the trade balance could be positive, and posted a substantial surplus of USD 776 million which was almost equivalent to the whole FY2012s surplus. Looking into details, the increase in exports was mostly thanks to the surge in exports of other means of transportation, and accessories, and the impressive growth of textile and garment exports. Even though the sudden jump of other means of transportation, and accessories export might not extend, the exports of textiles and garments are expected to be sustainable, and enhance export turnover growth. In case of imports, most of them focused on computers, electrical products, and mobile phones following the arrival of new products and seasonal increase in demand. As such, the import growth might slow down in the coming months following ongoing weak demand, and the surplus of trade balance of goods will likely remain relatively high.

VGB-GGB MARKETS
PRIMARY MARKET
VGB Oustanding by Remaining Maturity
4% 8% 0% 23% Less than 1 year 1 up to 3 years 3 up to 5 years 21% 44% 5 up to 7 years 7 up to 10 years 10 years or above 400 350 300 250 200 150 100 50 01-12 04-12 07-12 Issued by State Treasury Issued by VDB and VBS 10-12 12-12
Trillion VND

VGB Outstanding

Sources: HNX and ACBS (2013)

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Issuer 1 2 3 VDB VDB VDB Term 2Y 3Y 5Y 3Y 5Y 3Y 5Y Date of Auction 05-Feb-2013 05-Feb-2013 05-Feb-2013 07-Feb-2013 07-Feb-2013 08-Feb-2013 08-Feb-2013 Date of Issuance 07-Feb-2013 07-Feb-2013 07-Feb-2013 15-Feb-2013 15-Feb-2013 19-Feb-2013 19-Feb-2013 Coupon Rate 9.70% 9.30% Winning Volume
(VND bil.)

Winning Yield 9.75% 8.65% 9.30% 9.98% -

Lowest Bid Yield 9.95% 9.65% 9.75% 8.20% 8.35% 9.85% 10.80%

Highest Bid Yield 11.37% 11.67% 12.00% 10.50% 10.17% 11.10% 11.70%

Ceiling Yield -

200 3,000 2,450 500 -

4 Treasury 5 Treasury 6 7 VBSP VBSP

Table: VGB, GGB Issuances via Auctions on the HNX in February. Sources: HNX and ACBS Research (2013)

The In the last week of the year of Dragon and the first week of the year of Snake, the primary market appears to be relatively silent compared to the previous weeks. In particular, the State Treasury could achieve 91% of its issuance target; meanwhile, the winning yields remained firm in comparison with ones in previous weeks. In specific, the State Treasury could place VND 3 trillion worth of 3Y T-bonds at the accepted yields of 8.65%, dropping slightly by 4 bps against previous auction. In addition, VND 2.45 trillion worth of 5Y T-bonds was successfully issued with yields ranging 8.35-10.17%, and the winning yield remained stable. The ongoing uptrend of the Government bond prices appears to stall as the available room for further cut of deposit rate might not be much. Moreover, that the Vietnam welcomed Lunar New Year led to higher demand for cash. As a result, banks had to reserve sufficient cash in order to meet increased withdrawal from depositors for pre-Tet shopping and firms salary and bonus payments.

SECONDARY MARKET
11%

VGB Yield Curve

35
Trillion VND

VGB Turnover

30 25 20

10%

9%

15 10
Sep-12 Nov-12 Jan-13 Oct-12 Dec-12 Feb-13

8%

5 01-11 06-11 11-11 04-12 09-12 02-13

7% 1Y 2Y 3Y 5Y

7Y

10Y

Sources: HNX and ACBS Research (2013)

Remaining Maturity <1Y 1Y 2Y 2Y 3Y 3Y 5Y 5Y 10Y

December 2012 2,803 9,008 7,717 5,311 2,162

January 2013 1,756 10,651 7,278 8,659 3,417

February 2013 727 3,313 2,769 2,151 191

Table: VGB trading turnover on the HNX. (VND billion) Source: HNX and ACBS Research (2013)

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Trading on the secondary market slowed down in the first trading week of the year of Snake. Total trading turnover amounted only VND 2.7 trillion, dropping 52% against the previous week. Investors continued to favor short-term bonds; however, some insurance companies increased their holdings to reallocate their duration leading to active trading of longer-term bonds. The drop in the trading volumes might be attributable to the lack of bond auctions on the primary market; meanwhile, the current yield levels appear not to be attractive. Moreover, the consumer price data for the month of February, and higher inflationary pressure might not back a further interest rate cut. Bond yields on the secondary market increased modestly compared to the first two weeks of February. The yields on 1Y and 5Y bonds increased, by 10 bps and 20 bps, to 7.90% and 9% from 7.80% and 8.80%; meanwhile, 2Y and 3Y bond yields stayed at 8.40% and 8.50%. In contrast, 7Y and 10Y bond decreased significantly 30-40 bps to 9.30% following increased demand from insurance companies. Given the current bond yield levels and increasing inflationary pressure in March, traders should consider steadily lowering their holdings on short-term bonds, but may maintain their holdings on long-term bonds.

VIETNAM GOVERNMENT EUROBONDS

bps 420

Credit Default Swap

6.5%

Eurobond Yield

320

5.5%

220

4.5%

120

3.5% 5 year Eurobond Yield 07-12 08-12 10-12 10 year Eurobond Yield 11-12 01-13

20 01-12 03-12

CDS 1-year 05-12 07-12

CDS 5-year 09-12 11-12 01-13

2.5% 06-12

Sources: Bloomberg and ACBS Research (2013)

The Vietnamese CDS spreads tightened slightly this week as the 1Y CDS spread narrowed 1 bps to 65 bps, and the 5Y CDS spread dropped 3 bps to 212 bps. Meanwhile, yields on the Vietnamese international bonds remained firm. Yield on 5Y Eurobond stayed at 3.13%, and 10Y Eurobond yield finished at 4.30%.

MONEY MARKET
24% 20% 16% 12% 8% 4% 0%
Jan-12 Mar-12 Jun-12 Aug-12 Oct-12 Jan-13

200

Deposit & Lending Rates

160 120 80 40 -

Trillion VND

Open Market Oustanding

VND lending rate USD lending rate

VND deposit rate USD deposit rate

Jan-12 Feb-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13

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19% 16% 13% 10% 400 7% 4% 1%
Jan-12 Mar-12 Jun-12 Aug-12 Oct-12 Jan-13

VND Interbank Rates

Trillion VND

1,000 800 600

6% 5%

USD Interbank Rates

40,000
Million USD

30,000 4% 3% 2% 10,000 1% 0%
Jan-12 Mar-12 Jun-12 Aug-12 Oct-12 Jan-13

20,000

200 ON Short-term Long-term

Turnover

ON

Short term

Long term

Sources: SBV and ACBS Research (2013)

In order to support the liquidity among the banking system for Tet preparation, the State Bank of Vietnam (SBV) injected VND 52.55 trillion into banks via open market operation in early February. As such, total outstanding in the open market increased to VND 51.27 trillion from VND 1.76 trillion at the end of January. The higher demand for liquidity was also explained by the lower success rate of T-bill issuance on the open market as the SBV could only place VND 536 billion with accepted yield of 6.42%. In addition, the outstanding amount of T-bills dropped to VND 86.2 trillion. After the Tet holiday, the amount of money injected into the banking system through open market operation slowed down to only VND 939 billion this week; accordingly, the money outstanding declined to around VND 0.94 trillion. Besides, bank interest in T-bills increased, and they accumulated VND 29.66 trillion worth of T-bills, pushing the T-bill outstanding up to VND 106.44 trillion. On the interbank market, the VND interest rate dropped significantly for all terms. The overnight interest rates decreased from 4.0-4.4% to 2.0-2.6%; meanwhile the 1W and 2W rates lost around 2 percentage points to 2.4-3.0% and 3.0-3.8% respectively. The banking data released by the SBV showed that total credit line growth remain in the negative territory; meanwhile, total mobilized fund kept increasing. Total outstanding loans decreased 0.16% YTD as of February 19, improving modestly against the negative growth of 1% in January. In the meantime, total fund mobilization increased 1.2% YTD. Although outstanding loan growth remains negative, it trends higher. In fact, the negative credit line growth might be due to the abrupt increase in lending at banks in the fourth quarter of FY2012, which appeared to be attributable to banks products that allowed clients to use long-term deposits as collateral for short-term borrowing at preferential lending rates. For the whole FY2013, the SBV targeted total credit line growth at 12% y-o-y. However, as per our previous reports, we forecasted that loan outstanding might increase 10% y-o-y following ongoing domestic weakness.

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FOREX MARKET
VND

VND/USD Exchange Rate

49 47 45 43 41

Mln VND/ tael

21,600

Gold prices

21,200

20,800

20,400
The Reference Rate The Exchange Rate Cap The Exchange Rate Floor Effective Exchange Rate

39 37

20,000 1-Jun

Domestic Gold Price US Gold at Cross Rate US Gold at the Official Cap

16-Jul

30-Aug

14-Oct

28-Nov

12-Jan

1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov 1-Dec 1-Jan 1-Feb

Sources: ACB and ACBS Research (2013)

The local gold price continued to trend higher, especially after the Tet holiday, in line with the downward momentum of the international gold price. However, the expansion of the gap between domestic and world gold price casts widespread concerns over the economic stability as these attractive risk-free profits might trigger demand for foreign currencies to import gold illegally. In fact, the foreign currency exchange rates fluctuate wildly during this week as the VND/USD exchange rates in the black market as well as ones quoted at most commercial banks broke above VND 21,000/USD. However, the sudden increase in the VND/USD exchange rates might be due to seasonal factors and market sentiments rather than a shortage of supply. Looking ahead, the SBV will unlikely devaluate the Dong, at least in the first quarter of FY2013 because: (1) the depreciation of the Dong might lead to higher import prices, triggering inflation, and (2) the SBV gained more source to stabilize and actively control the foreign exchange market. According to the Gener al Customs latest report, the trade surplus of goods reached USD 0.6 billion in the first half of February. As such, since the beginning of FY2013, the trade balance of goods recorded a surplus of around USD 1.4 billion. Meanwhile, the Central banker, in an interview with local media, noted that the SBV bought about USD 18 billion in the previous year. As a result, these factors were to back a further sustainability of the VND/USD exchange rate. In the NDF market, foreign investors confidence in the strength of the Dong remained relatively strong. The 1M NDF price stayed at around VND 21,000; meanwhile, the prices of 3M and 12M NDFs ended at VND 21,200 and VND 22,800 respectively.

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ABBREVIATIONS
CDS GGB : Credit Default Swap : Government Guaranteed Bond. Unless otherwise stated, we take into account only GGB issued by Vietnam Development Bank and Vietnam Bank for Social Policies NDF : Non-Deliverable Forward contract for selling USD OM : Open Market OMO : Open Market Operations Treasury : Vietnam State Treasury VBSP : Vietnam Bank for Social Policies VDB : Vietnam Development Bank VHIDC : Vietnam Highway Investment and Development Corporation VGB : Vietnam Government Bond issued by the State Treasury VNIBOR : Vietnam interbank rate

ANALYST CERTIFICATION
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