q1 2014 colliers vietnam investment digest
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DESCRIPTIONColliers Vietnam Q1 2014 Investment Report: Read and follow the top economic indicators for Vietnam, M&A activity, and major developments in finance, banking, and legal. Published Monthly with contribution from LNT & Partners Law Firm.
- > Investment Digest Vietnam Q1/2014 *Arrows indicate monthly, quarterly, or period-over-period trends as appropriate **Data is accurate as reported on the indicated date Market Snapshot Trend Indicator January February March Date 10-year bond yield 8.90% 8.84% 8.70% 31-Mar Credit Market -0.55% ytd -1.2% ytd +0.01% ytd 31-Mar Deposit Rate 7%-9% 7%-9% 6%-8% 18-Mar FDI -21.9% yoy to $0.3971b -62.5% yoy to $1.54b -49.6% yoy to $3.334b 20-Mar FDI Disbursed +3.3% yoy to $0.465b +6.7% yoy to 1.12b +5.6% to 2.85b 20-Mar Fitch B+ B+ B+ 26-Mar GDP - - 4.96% 1-Apr Inflation +0.69% ytd +1.24% ytd +0.8% ytd 28-Mar Lending Rate 7-9% short, 9-13% long 7-9% short, 9-13% long 7-9% short, 8-13% long 30-Mar IIP +3% yoy +5.4% yoy +5.2% yoy 31-Mar Moodys B2 B2 B2 26-Mar Overnight Rate 3.37% 2.77% 1.70% 28-Mar PMI 51.8 51 51.3 1-Apr Refinance Rate 7% 7% 6.50% 28-Mar Repurchase Rate 5% 5.50% 4.50% 28-Mar Retail Sales +12.6% yoy +13.7% yoy +10.2% yoy 30-Mar Standard & Poors BB- BB- BB- 26-Mar Trade Turnover -10.8%/-14.6% yoy +12%/+17% yoy +14.1%/+12.4% yoy 27-Mar VND-USD 21,053 21,085 21,079 1-Apr VN-Index 504.63 586.48 591.57 31-Mar Access more reports and connect with us at bit.ly/investVN & slideshare.net/ColliersVietnam Q1 2014 | VIETNAM INVESTMENT DIGEST
- Despite reform delays and credit stagnation, the economy made solid gains in other areas. GDP growth in Q1 is the highest since 2011, consumer confidence is the highest since 2011, inflation continues to fall, the current account is maintaining a healthy surplus, the Dong has maintained stability to the dollar, while actually strengthening in relation to other ASEAN currencies, and foreign trade continues its double-digit growth benefitting from Chinas aggressive geopolitical posturing and Vietnams regionally competitive labor and energy costs. Both stock exchanges advanced in Q1 with the VN- Index gaining 17.25% and the HNX-Index 31.66%. Foreigners led the advance due to a variety of factors including an anticipated increase in foreign ownership limits, Chinas aggressive regional posturing, and the destabilization of several emerging markets such as Ukraine, South Korea, and Thailand. We expect economic expansion to accelerate in 2015- 2017. Deleveraging will continue through into 2016, but we expect domestic demand to rise in 2015 and help shrink the output gap. The investment environment is strongly favorable for affordable and mid-income residential, and logistics property; favorable for office and retail; and unfavorable for high-end residential. Q1 has been a quiet quarter with no surprises: Vietnam is in a holding pattern of sub-7% growth unable to shake free the fetters of bad debt and a system mired in lethargy and special interests. There has been little progress in both of the two key drivers that was mentioned in the last letter (Q413) - financial sector reform and an overall deleveraging of both the public and private sectors contributing to the large output gap and underutilization. Vietnam seems to prefer slow incremental changes resulting in missed opportunity cost as it lags behind its ASEAN neighbors. Circular 02, which promises to apply international standards to debt classification and risk provisioning, has been postponed once again to April 1st, 2015 from June 1st, 2014. Circular 09 (Mar 18, 2014) will allow banks to postpone certain provisions in Circular 02 in hopes it will soften the blow to the banking sector. While there is risk to the market in the form of credit crunch and insolvency, this will once again extend deleveraging and further flatten the recovery curve. Vietnam is also focusing on reducing rates to spur credit growth and investment. However, despite very dovish policies, credit rose a negligible 0.01% ytd against the years target of 12%-14%. Current indications point to a lack of domestic investment appetite due to a combination of high levels of debt and low domestic demand. This has resulted in high levels of liquidity, as evidenced by low interbank rates. For lack of better options, banks have been parking the excess in g-bonds. The State Bank of Vietnam (SBV) hopes that long-term rates between 7%-9% (currently 9%-13%) will be the catalyst necessary for sustained domestic investment activity. Managers Letter KYNAM DOAN Investment Manager email@example.com +84 1223 128 032 2 Vietnam Investment Digest | Q1 2014 | Managers Letter COLLIERS INTERNATIONAL VIETNAM INVESTMENT DIGEST | Q1 2014
- Headlines Central Bank Delays Circular 02 to Apr 1, 2015 In March, the central bank issued Circular 09/2014/TT-NHNN amending Circular 02/2013/TT-NHNN on classification of debt and risk provisioning at banks that will bring transparency and raise risk management practices to international standard. Circular 09 will delay some of the major provisions of Circular 02 until April 1st of 2015 in hopes of softening the blow of banking reform. Experts expect NPLs to jump to 9%-15% from the currently reported 3%- 4% once the circular is enacted potentially crippling credit and leading to failures of weaker banks and businesses. This latest delay follows a prior delay that pushed the execution of Circular 02 from June 1st 2013 to June 1st of 2014. Reform of the banking sector and reduction of NPLs will be further delayed and continue to depress Vietnams growth. VIETNAM INVESTMENT DIGEST | Q1 2014 3 Vietnam Investment Digest | Q1 2014 | Headlines COLLIERS INTERNATIONAL Credit Rating Agencies & Corporate Bond Information Center The Vietnam Bond Market Association (VBMA) and the Ministry of Finance are planning to set up a corporate bond information center to educate the market, provide information about the primary and secondary markets, and set up a yield curve. Last year, the volume of corporate bonds sold was 34.41 trillion VND (1.62 billion USD), a surge of 19.87 percent from 2012, 37.64 percent against 2011 and 14.7 percent over 2010. The Ministry of Finance as also submitted a framework for the establishment of credit rating agencies and expects a decision within the first or second quarters of this year. This will be key in opening up the bond market to both domestic and foreign investors. IPOs of State-Owned Companies Struggle State-owned companies offered to sell nearly 304.5 million shares in the first quarter, of which nearly 83.5 million shares, or 27.4%, were sold. Local investors were most active, while foreigners bought only 10.1 million shares. Among the companies selling shares, most were in public works in the property sector, which is still experiencing recession with uncertain times ahead. While equities are up 17% this quarter, foreign investors are hesitant to purchase SOEs that are struggling and facing a mandate to equitise major headwinds contributing to these early struggles. This will make it difficult for the government to meet its plan to sell shares in 432 state-owned enterprises by 2015 - part of their major initiative to restructure the state-owned sector away from non-core activities. ACV Prepares for Expansion of Tan Son Nhat International Airport Airports Corporation of Vietnam (ACV) is planning to expand Tan Son Nhat International Airport in HCMC to expand capacity to 26 million passengers a year from the current 20 million. This expansion is necessary while awaiting progress on Long Thanh Intl Airport in Dong Nai, which has yet to start. The airports annual capacity reached 20 million passengers late last year, one year sooner than earlier estimated, and is estimated to reach 25 million by 2016. Passenger volume is expected to reach 30.3 million by 2020 and 53.4 million by 2030. Such a move is also a strong indication that progress on the Long Thanh Intl Airport has stalled further. Vietnam Investment Review recently reported that feasibility of the project was still under discussion. The first phase would cost an estimated US$7.8 billion, displace over 30,000 residents, absorb over 5,000 hectares of currently growing cash crops Over 18,000 new Companies Formed and Over 16,000 Businesses Suspend or Closed in Q1/2014 The Ministry of Planning and Investment (MoPI) has reported that 16,745 enterprises have closed or suspended their business operation in the first quarter of this year. This is an increase of 9.6% over the same period last year. The MoPI also reported that 18,358 new companies formed worth VND97,983 billion ($6.64 billion) of registered capital, rising 16.9% in quantity and 23.4% in capital. Additionally, 4,622 enterprises which had registered to suspend or close their businesses restarted their operation, making a year on year rise of 48.9%.
- 4 Vietnam Investment Digest | Q1 2014 | Headlines COLLIERS INTERNATIONAL VIETNAM INVESTMENT DIGEST | Q1 2014 Headlines Credit Stymied Despite Loose Monetary Policy Lending grew by a negligible 0.01% against the end of 2013 despite low rates that continue to fall. In March the State Bank of Vietnam lowered its discount rate to 4.5% from 5%, refinance rate to 6.5% from 7%, and repurchase rate to 5% from 5.5%. This rate of growth falls short of government targets of 12%-14% for 2014 and only reinforces the urgency with which NPLs need to be addressed. The high liquidity is being shifted to public debt as banks are parking all of this excess cash in government bonds. Prime Minister Nguyen Tan Dung last month asked the monetary authority to step up measures to lower lending rates. The determined dovishness of the government and SBV will eventually lead to rising inflation once the market begins to expand their balance sheets. HCMC Office Sector Over the first three months of this year, occupancy rate of Grade A office buildings in HCMC increased slightly to 90.2% while the median rentals gained 0.27% q-o-q. Average asking rent of
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