Macro outlook 2019March 2019

Asia: Brace, brace

Asia has started to loose some steam of late

3

46

47

48

49

50

51

52

53

54

Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Dec-17 Aug-18

New export orders New domestic orders

PMI manufacturing orders (3 mma)

Source: Markit, HSBC

Trade downturn runs deeper than tariffs

4

OECD leading indicator (index)

Source for both charts : CPB, OECD, HSBC

95

96

97

98

99

100

101

102

Jan-00 Jan-04 Jan-08 Jan-12 Jan-1630

35

40

45

50

55

60

65

Jan-98 Jan-02 Jan-06 Jan-10 Jan-14 Jan-18

Global electronics PMIs new orders (index))

Tariffs… who stumbled?

5

-20

-10

0

10

20

30

40

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

US imports from China US export to China

Source: CEIC, HSBC

% y-o-y, 3mma

Where the trade tensions hurt

6

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

China USA Korea Japan

Source for both charts: IMF, CEIC, Census Bureau, HSBC

US tariffs on

auto imports

Impact of US-China trade war on GDP growth (ppt)*

*Direct trade impact of a 25% US tariff on USD250bn

of imports from China, and Chinese retaliation

0 20 40 60 80 100

PC accs.

Apparel

Furniture

Footwear

Glassware

Stereos

Computers

Cell phones

Cutlery

Toys, etc

Others Rest of Asia China

Share of global exports (%)

Who’ll take over from China?

7

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

IN ID TH MA PH VN

Exports Investment

*Assuming economy ‘captures’ 1% of Chinese exports

to US or 1% of FDI into China

Potential gains from trade diversion* (% of GDP)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

MY* SG VN NZ JP AU IN ID SK TH

Impact of CPTPP (% of GDP)

Source for both charts: IMF, CEIC, PIIE, HSBC

*not yet ratified

Sustainable growth in turbulent times

Vietnam is still poised for continued robust growth

Source for both charts: CEIC, HSBC

Strong GDP growth in the next few

years

Manufacturing’s contribution coming off a 10-

year high

9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17Industry: Manufacturing

contribution to growth, ppt

highest contribution in at least 10 yrs.

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10

Dec-16 Jun-17 Dec-17 Jun-18 Dec-18

Agriculture MiningManufacturing ConstructionServices OthersGDP, y-o-y (RHS)

ppt, contribution YTD, y-o-y

f'cast

Exports growth should slow from 2017 but should remain robust

Source: CEIC, HSBC

10

-10-505101520253035

-10-505

101520253035

Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18

Exports: Crude Oil Textile and footwear Phones and computer electronics Others

contribution to export growth, ppt contribution to exports growth, ppt

But it’s not all about manufacturing and exports…

Source for both charts: CEIC, Ministry of Planning and Investment, HSBC

Services, particularly transport, accommodation,

and retail sales have outperformed

Unemployment and underemployment rates

have declined, while wage growth has risen

11

0.0

2.0

4.0

6.0

8.0

10.0

1.5

1.7

1.9

2.1

2.3

2.5

Mar-15 Nov-15 Jul-16 Mar-17 Nov-17

Unemployment Rate

Underemployment Rate

Average Monthly Earning, % y-o-y (RHS)

% y-o-y%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Sep-13 Oct-14 Nov-15 Dec-16 Jan-18

Wholesale, Retail Sales & Motor Vehicles

Transportation & Storage

Accommodation & Food Service Activities

YTD, y-o-yYTD, y-o-y

But it’s not all about manufacturing and exports…

Source for both charts: CEIC, HSBC

Tourism has reached above 10m arrivals for the

past two years

Around 70% of tourists to Vietnam come from Asia,

mostly from China and South Korea

12

Americas

Europe

Oceania

China

Japan

South Korea

Rest of Asia

Asia

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

Asia Americas Europe Oceania

millionmillion

10 million arrivals

Domestic risks

Public debt as a reduced threat

Source for both charts: CEIC, HSBC

Public debt-to-GDP in 2017 declined for the first

time since 2012……the fiscal deficit also dropped to below 4%

of GDP in 2017

14

50.8

54.5

58.0

61.0

63.7

61.3 61.4 61.0 60.9

45.0

47.0

49.0

51.0

53.0

55.0

57.0

59.0

61.0

63.0

65.0

45.0

47.0

49.0

51.0

53.0

55.0

57.0

59.0

61.0

63.0

65.0

% of GDP% of GDP Public debt -to-GDP limit

-280

-210

-140

-70

0

2012 2013 2014 2015 2016 2017 2018f 2019f

-8.0

-6.0

-4.0

-2.0

0.0

Fiscal Balance Fiscal Balance, % of GDP (RHS)

VND, trn % of GDP

Credit growth: Quality over quantity

Source: CEIC, HSBC

15

0

5

10

15

20

25

0

5

10

15

20

25

Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18Agri. and Forestry Construction

Industry Trade, Transport & Telecom

Real estate, financial, and other services Credit Outstanding (RHS)

%, yoyppt, contribution

Macro-prudential measures have helped funnel credit away from real estate toward tradable industries

Credit growth: A race to recapitalise

Source: CEIC, HSBC

16

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18

Credit Institutions State-owned Banks Joint Stock Commercial Banks

% %

Joint Venture,Foreign banks: 27.4% (2017)

Capital adequacy ratio has fallen consistently, especially at state-owned banks

Inflation risks greatly reduced

17

HSBC Research - Vietnam at a glance: 02 January 2019

Long-term outlook

FDI as a driver for future growth

Source for both charts: CEIC, HSBC

FDI has grown consistently over the past few

years…

…with the lion’s share going to the manufacturing

sector

19

63%9%

7%

3%

18%

Manufacuturing Real Estate

Retail Transportation & Storage

Others

0

2

3

5

6

8

0

2,500

5,000

7,500

10,000

12,500

15,000

2010 2011 2012 2013 2014 2015 2016 2017

Total FDINet FDITotal FDI (% of GDP), RHSNet FDI (% of GDP), RHS

USDm % of GDP

FDI as a driver for future growth

Source for both charts: CEIC, HSBC

Foreign-invested exports have grown significantly

over the past 10 years…

…while labour is still primarily in agriculture

20

0

3

6

9

12

15

0

3

6

9

12

15

00 02 04 06 08 10 12 14 16Exports: Foreign Invested Sector

Exports: Domestic Sector

USDbn, 12mmaUSDbn, 12mma

0

10

20

30

40

50

0

10

20

30

40

50

2012 2013 2014 2015 2016

Employment: Agriculture, Forestry and Fishery

Employment: IC: Manufacturing

Employment: Service

% of total employed% of total employed

Gains from trade still to be had… TPP is coming

-1

0

1

2

3

4

5

6

7

8

AU* NZ* JN* MA* SI* VN* KR PH TH TA ID

TPP 11 TPP TPP 16

Source: Petri, Peter et al, “Going it alone in the Asia-Pacific: Regional Trade

Agreements Without the United States”; PIIE Working Paper, 17-10, October, 2017

Note: *Denotes TPP member.

Gains to national income by 2030 relative to baseline (%)

21

Long-term growth forecast

Source for all charts: HSBC

Projected ranking changes by 2030 compared with 2018

22

HSBC long-term growth model projections for real GDP growth

Labour productivity relative to the US (US = 100)

Source: The Conference Board, HSBC

23

0

10

20

30

40

50

60

70

80

90

100

110

120

CH HK IN ID JP MY PH SI SK SL TA TH VN

2007 2017

US level

24

Getting old before getting rich

Productivity matters

-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

GDP growth - 40% I/GDP with reforms GDP growth - 35% I/GDP no reforms GDP growth - 35% I/GDP with reforms

Source: HSBC estimates

HSBC's key Vietnam

Economic Forecast 2013 2014 2015 2016 2017 2018f 2019F 2020F

GDP (%) 5.4 5.98 6.68 6.21 6.8 7.1 6.5 6.3

GDP per capital (USD) 1,854 2,010 2,074 2,207 2,286 2,480 2,617 2,806

CPI (average, % y-o-y) 6.6 4.1 0.7 2.7 3.5 3.5 3.4 3.7

Export, value (%, y-o-y) 15.3 13.8 7.9 9.0 21.8 13.4 9.7 8.3

Import, value (%, y-o-y) 16.0 12.0 12.0 5.2 22.3 10.9 10.2 9.2

Trade balance (USD bn) 0.00 2.4 -3.6 1.8 2.1 7.8 7.3 5.5

Int’l FX reserves (USD

bn) 25.5 33.8 27.9 36.2 48.7 59.3 67.3 75.3

USD/VND (end of period) 21,095 21,250 22,500 22,770 22,698 23200 23550 23800

Policy rate (end year, %) 5.5 6.5 6.5 6.5 6.25 6.25 6.25 6.25

HSBC key forecast

26

Source: HSBC Research – Asian Economics - Q1 2019

This document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The information contained

herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no

representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to

the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or

omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from

the use of this document. Any information (including market date, prices, values or levels) contained here are indicative only

and any examples given are for the purposes of illustration only and may vary in accordance with changes in market

conditions. The opinions in this document constitute our present judgment, which is subject to change without notice. We

are not obliged to enter into any actual trade with you based on the any information contained herein. This document does

not constitute an offer for, or advice that you should enter into, the purchase or sale of any security, commodity or other

investment product or investment agreement, or any other contract, agreement or structure whatsoever This material is

intended for distribution to, or use by, Professional Investors only, as defined in the Hong Kong Securities and Futures

Ordinance. The document is intended to be distributed in its entirety. No consideration has been given to the particular

investment objectives, financial situation or particular needs of any recipient, you should conduct relevant due diligence and

analysis, and seek necessary independent professional advice. Unless governing law permits otherwise, you must contact a

HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any

investment mentioned in this document. This document, which is not for public circulation, must not be copied, transferred

or the content disclosed, to any third party and is not intended for use by any person other than the intended recipient or the

intended recipient's professional advisers for the purposes of advising the intended recipient hereon.

HSBC does not provide legal, tax, accounting, regulatory or other specialist advice and you should make your own

arrangements in respect of such matters accordingly. You are responsible for making an independent assessment and

obtaining specialist professional advice in relation to the merits of the proposals contained herein. In particular, this

document may contain certain references to regulation. HSBC makes no representation that the references to regulation, if

contained herein, are exhaustive. There could be other references to regulation that may also be relevant to the proposals.

HSBC does not give advice on regulation. You should consult your own advisers on regulation.

Copyright. The Hongkong and Shanghai Banking Corporation Limited 2017. ALL RIGHTS RESERVED. No part of this

publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai

Banking Corporation Limited.

Disclaimer

27