VIETNAM MACRO WEEKLY

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

February 10, 2014

Analyst Contact: Institutional Research & Investment Advisory Pham Luu Hung (Mr.) Associate Director hungpl@ssi.com.vn

Fixed income market review

The money market was tranquil after the Tet holidays as expected. In the interbank market, the overnight interest rate contracted to 3.5% pa against pre-Tets level of 5.5%; meanwhile, the 1W 3W and 1M rates dropped to 4.0 4.5% and 5% respectively. Additionally, the State Bank of Vietnam also withdrew approximately VND 2.9 trillion through the open market operation. In the corporate tier market, deposit rates remained unchanged at 0.8 1.2% pa, and 6.8% for overnight and 1month terms respectively. In the primary market, no auctions were held for G-bonds as well as G-backed bonds in the previous week. This week the Vietnam State Treasury will hold auctions for VND 7 trillion worth of 2Y, 3Y, and 5Y G-bonds. As the interbank rates were more tranquil, and credit growth will likely be negative during the first few months, we expect the VST could extend its winning streak with lower winning yield. In the secondary market, only VND 1.1 trillion worth of G-bonds and G-backed bonds exchanged through outright and repo transactions as there were only 2 trading sessions. As such, trading yields almost flattened given the inactive atmosphere. In the coming trading sessions, trading turnover is expected to revert to its normal level

O/N interbank

OMO outstanding volume and OMO rate

before the Tet holidays, and yields could further compress, but at a diminishing rate. Last winning yield
Winning yield VBSP N/A 7.90% 8.25% 9.20%

(year) 1 2 3 5 10 15 This week issuance plan Auction date 13-Feb-14 13-Feb-14 13-Feb-14 Issuance date 15-Feb-14 15-Feb-14 15-Feb-14

VDB N/A 8.00% 8.35% 9.20% 9.20%

STV 6.00% 6.77% 7.19% 8.19% 8.90% 9.00%

Maturity date 15-Feb-16 15-Feb-17 15-Feb-19

Issuance method Auction Auction Auction

Issuer STV STV STV

Tenure 2 years 3 years 5 years

Volume 3000bn 2000bn 2000bn

Source: HNX
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INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

Government bond yield fixing

Inflation
The Ministry of Finance (MoF) kept gasoline price unchanged and curtailed diesel oil price slightly just before the long holiday, to keep the inflation in check. In addition, there was no price volatility during the Tet holiday period, and this has induced a prime opportunity for them to increase electricity price in February, only 6 months after the previous hike.

Exchange rate
After VND withheld strongly before the Tet holiday, possibly for the fact that banks switched to a short position in USD to enjoy the higher VND interest rate during the
Unofficial USD/VND exchange rate

long holiday, interbank VND/USD exchange rate normalized because of covering demand at 21,080/21,130. However, there is more volatility in unofficial market, where USD/VND edged to 21,190/21,215, possibly for the fact that gold bar price rebounded in the last few days.

Other
The State Bank of Vietnam (SBV) announced that for this year, credit institutions restructuring would broaden to non-bank institutions (financial & leasing companies), as their earnings performances and credit quality are normally the most destitute (in 2013 their total asset declined about half and equity at only one fourth left). The SBV would also accelerate divestments from the banking sector
Gap between local and global gold bar price

(mostly for SOEs, which hold a sizeable stake in commercial banks, and for other private companies, to partly resolve the cross-ownership issue). There is still no further information on Circular 02 relaxation, nevertheless, the SBV continues to assess credit quality at all banks, basing on the original Circular 02, to determine whether the bad debt level improved or worsened during the year. Although the

result might not be immediately available for the public, we believe that a gradual approach is more desirable in Vietnam and a soft-landing scenario for the banking sector is very likely. On the manufacturing front, the industrial production index edged up only 3% YoY compared to Decembers growth of 7%. The decelerated growth of the IIP was primarily predicated on (i) the stumble of mining and quarrying, and (ii) long Tet holidays. And we understood that the Vietnams Manufacturing PMI for the month of January seemingly reflected the picture of Vietnams production more realistically with this index remaining above the demarcation line of 50 for 5 consecutive months at 52.1, which was close to the peak of 52.5 in April 2011. As such, this was an encouraging signal for the overall economy in this year of the horse.
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INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

CPI

The week ahead

Delays have been seen in FOL extension and Circular 02 relaxation, so any developments regarding the two policies are welcome with open arms. Discussions on higher electricity price should gain a lot of spark in this coming week. The HNX meeting with market participants this afternoon is another of our focal point, as it might provide guidelines for the government bond issuance plan this year, and measures to
Source: GSO, CEIC, Bloomberg

support both the equity and bond market for this year.

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INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

What is SSIs Vietnam Macro Weekly report?

SSIs Vietnam Macro weekly provides our research clients with timely opinions on breaking credit market developments and trends. Published every Monday morning, the newsletter will help you start your week informed of SSIs latest opinions from across the organization.

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VIETNAM MACRO WEEKLY

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

Director, Institutional Research & Investment Advisory Phuong Hoang phuonghv@ssi.com.vn

Associate Director Pham Luu Hung hungpl@ssi.com.vn Analyst, Macro Phat Cao phatct@ssi.com.vn

The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.

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