2013 was an acceptable year for the stock market and solid macro-economic conditions would result in a healthy 2014. Mac Quang Huy, CEO of Maritime Bank Securities (MBS)
The Year of the Snake, 2013, has come to an end with Vietnam continuing to struggle with a wide range of challenges. The economic crisis that began a few years ago is not over yet. Despite impressive figures, macro-economic factors bring little hope for the future.
2013 closed with inflation at around 6 per cent; its lowest level for ten years. The trade surplus stood at $900 million, a similar result to 2012. On the surface these appear to be good figures but there is actually some cause for concern. Weak national demand lies behind the low figures, triggering production stagnation. Credit growth was around 11 per cent versus the 12 per cent target, but disbursements mainly came at the very end of the year while there is a surplus in bank liquidity. These reflect a slowdown in domestic production and the unhealthy state of the economy.
Foreign direct investment (FDI) was probably the brightest spot in Vietnam’s macro picture last year. As at November, registered and disbursed FDI stood at $22 billion and $12 billion, respectively, for an increase of 54 per cent and 10 per cent year-on-year. Off-shore cash flows may become a leading factor in restoring Vietnam’s economy in the time to come. The Vietnam Dong (VND) was devaluated by 1 per cent in June after two years of being kept stable. Further devaluation will probably take place in 2014 as the government seeks new global cash inflows.
Following the well-known Vinashin case three years ago, the two large corruption scandals at Vinalines, the State-owned shipping and port corporation, and Agribank Leasing Company II (ALCII), a 100 per cent owned subsidiary of the country’s largest State-owned bank, have worsened the macro picture and affected public confidence. The cases were brought to the public’s attention in December, with the four death penalties handed out by the court somewhat easing the political tension. On the one hand, credit should be given for the quick action and rather harsh measures taken by the government in these two cases, but the public belief is that these are only the tip of the iceberg. It has become clear that Vietnam’s SOEs have become a major burden on the economy and very few operate effectively despite their huge advantages and resources compared with private enterprises.
It should be noted that the government is already aware of the many problems at SOEs and has introduced a number of measures to improve their corporate governance and management efficiency. These measures include boosting the equitisation and restructuring process and requiring SOEs divest from their non-core businesses to focus on what they can do best. These measures are certainly the right steps to take but will need to be sped up to have any meaningful impact.
A number of international organisations believe that Vietnam’s economy stands a good chance of recovering and will be slightly better this year, but GDP growth will remain below 6 per cent.
Equity market: Year of the blue-chip
The stock market was boosted significantly in 2013, despite the macro-economic deterioration, as “giant” stocks returned. The VN-Index punctured the 500-point mark at year’s-end, climbing by around 21 per cent year-to-date and on the way back to its 2007 record peak. Market capitalisation rose from VND765,000 billion ($36 billion) to VND964,000 billion ($46 billion) by year’s end, accounting for around 31 per cent of GDP, mainly due to rises in blue-chip stocks, which made up the bulk of total market value.
After three years of being forgotten, blue-chip stocks regained momentum in 2013, leading to the rise of the stock market. While the macro-economy remains unfavourable there has already been a marked improvement in investor confidence and cash flows to the market as investors believe that the worst is already behind us and the economy will gradually pick up. Towards the end of the year the market saw several booming sessions as liquidity improved significantly. On November 21 a record 173 million shares changed hands. Average trading value stood at VND1,322 billion ($65 million) per session; a slight improvement year-on-year.
As an emerging market, Vietnam has seen participation by exchange traded funds (ETFs), including FTSE Vietnam Index Series, Vaneck Global-Market Vectors Vietnam (VNM), and iShare MSCI Frontier 100. Although the portfolio allocation to Vietnam of these funds remains modest, ETFs have become a new and interesting player in the local stock market. Local investors now look to guess the rebalancing act by ETFs at the end of each quarter to take advantage of the market’s thin liquidity through various speculation activities. This added a new taste and helped improved general liquidity. As indexes have edged up over the year, Vietnam ETFs can report the best performances in the Asia Pacific region in 2013. The EMAS-Index of Malaysia and LSX-Composite-Index of Laos reported gains of 13 per cent and 2 per cent, respectively, while all other regional indexes reported losses of up to 15 per cent.
As for the primary market, stock issuance is unfortunately not considered a good way to raise funds due to the generally low stock valuation, while bond issuance is considered a better solution in a low-rate environment. Most of the stock issuances are technical measures to raise funds from existing investors by way of bonus shares and/or rights issues. In the first six months only VND2,344 billion ($111 million) were raised, for a decline of 58 per cent year-on-year.
Amid generally conservative sentiment, very few new stocks have been listed while 37 have chosen to leave the bourse as a result of disqualification (20) or because of major shareholder intentions (17), who do not want to see their stock prices falling. This new record number of companies leaving the bourse for whatever reason only confirms the sluggish economy. The market expects to welcome a blue-chip from one of the largest banks in Vietnam in the new year. The stock of the Bank for Investment and Development of Vietnam (BIDV) is in its final stage of registering for central custody and listing on the Ho Chi Minh Stock Exchange (HSX).
Fixed income market: A better way to raise funds
As interest rates eked out a downward trend in 2013, many local businesses have chosen bond issuance as an alternative way of raising funds. In the first ten months an estimated VND30,000 billion ($1.5 billion) in corporate bonds were successfully issued in the primary market, but most of these were privately placed as the public market for corpora