VIETNAM MACRO WEEKLY

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

February 17, 2014

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

Fixed income market review

The money market maintained its tranquil atmosphere last week, and banks experienced increasing abundant liquidity. In specific, the ON and 1W interest rates fell to mid-2013s record low levels of 1.70% pa and 1.95% res pectively. Additionally, the State Bank of Vietnam also had to reissue CB-Bills to withdraw enormous cash flowing back into the banking system after the Tet holidays with around VND 59.5 trillion worth of CB-Bills sold and winning yield contracting to 3.08% pa and 4.20% for 1M and 3M tenors respectively. In the corporate tier, deposit rates flattened at 0.5 1.2% pa, and 6.8 7.0% for overnight and 1M terms respectively. In the primary market, the Vietnam State Treasury held its first auction after the long holidays with successful results. In fact, they even increased the issuance volume (by adding two more auctions for 3 and 5 year bonds) from VND 7 trillion to VND 10 trillion, and managed to sell a total volume of VND 9.28 trillion. Its almost been 4 weeks since the last auction, therefore it was no surprise why demand was so robust (bid to cover ratios ranged from 2.49 to 2.77x. Winning yield contracted 24 bps lower for both 3-5 year bonds, but 8 bps higher for 2-year bond in comparison to the st last auction on Jan 21 ). All these results confirmed our expectation in our last Macro recap in which we asserted that VST could extend its winning streak with lower winning yield, given the fact that short term credit growth was negative (-1.21% YTD), large volume of matured bond and inflation risk was quite low (as by Feb YoY inflation might decline lower than 5% YoY but might rebound in the coming months with the kicked-in effect from the expected electricity price hike, but very modestly). Notably, the VST announced the 2014 issuance plan. The total size of bond issuance would be VND 270-280 trillion, including VND 210 trillion for government bonds, VND 51-53 trillion for government-backed bonds and VND 10-12 trillion for municipal bonds. Pertaining to government bonds, the tenure-breakdown are as followed:
No. 1 2 3 4 5 6 Total Tenors Less than 1 year 2 years 3 years 5 years 10 years 15 years Planned volume in 2014 (billion VND) 40,000 55,000 60,000 40,000 10,000 5,000 210,000

O/N interbank

OMO outstanding volume and OMO rate

Source: VST & VBMA (2014)

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VIETNAM MACRO WEEKLY

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

Government bond yield fixing

In the secondary market, total transaction value approached its normal level of approximately VND 12 trillion, of which outright transaction turnover increased to VND 5.5 trillion. Trading yield decreased further despite higher selling pressure from banks. In particular, 1Y, 2Y, and 3Y yields finished at around 5.90%, 6.60%, and 7.00% respectively. In the coming trading sessions, we expect to see further decrease in trading yields due to (i) increasing cash at banks, and (ii) record low inflation.
Offered volume (VND bn) 1000 3000 2000 2000 2000 1000 Winning volume (VND bn) 1,000 3,000 1,670 1,610 2,000 1,000

Auction Date 2/10/2014 2/13/2014 2/13/2014 2/13/2014 2/13/2014 2/13/2014

Issuer STV STV STV STV STV STV

Tenure (Year) 1 2 3 5 3 5

Registered volume (VND bn) 5,710 8,320 6,240 4,580 3,900 2,900

Registered yield (%pa) 0.00-7.40 6.45-6.85 6.70-7.25 7.85-9.00 6.75-7.25 7.80-9.00

Winning yield (%pa) 5.85% 6.58% 6.95% 7.95% 6.95% 7.95%

Unofficial USD/VND exchange 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 17-Feb-14 17-Feb-14 20-Feb-14 20-Feb-14 20-Feb-14 Issuance date 19-Feb-14 19-Feb-14 24-Feb-14 24-Feb-14 24-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%

Gap between local and global gold bar price

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

Issuance method Auction Auction Auction Auction Auction

Issuer VDB VDB STV STV STV

Tenure 3 years 5 years 2 years 3 years 5 years

Volume 700bn 550bn 3000bn 4000bn 3000bn

Source: HNX

Inflation
We are still waiting for the official announcement on electricity price hike, and it seemed that we would get another month with low CPI, and in fact, the YoY CPI could hit lower than 5% by Feb. If it is the case, there is plenty of room for the MoF to consider removing subsidies on utilities price, or for the SBV, to cut the lending rate for several priority sectors (agriculture, export, hi-tech, supporting industry or SME).

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INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

CPI

Exchange rate
Data revision from the General Customs Office showed that Vietnam ran a big trade surplus of USD 1.44 bn in January, mostly thanks to decreasing imports (FDI-sector import declined 11% MoM and 4.8% YoY, domestic sector import declined 25.1% MoM and 6.4% YoY). We noted that the global gold bar price rallied roughly 4% WoW last week, helped the local price to break the VND 36 mil/tael and the bid/ask
Source: GSO, CEIC, Bloomberg

spread is now widened as volatility has returned. However, the gap between local and global price has not extended, and remained at roughly 6-7%, despite of the fact that so far the SBV has not conducted any gold bar auctions. So overall, we believe that USD/VND exchange rate is still stable.

Other
The upcoming Trans Pacific Partnership (TPP) meeting schedule has been announced, where the Ministerial-level meeting would be held in Singapore, from Feb 22-25 . Lower-level negotiation will also begin in Singapore from Feb 17-21 . Although a number of issues remained unresolved, the US side is adamant that they are entering the final stages of the negotiation. It is widely believed that Japan is the key apparatus who needs to break its gridlock garrison on its agriculture and automobile industries in order for the negotiation to see a breakthrough. From the start of the year, a number of countries have expressed their desire to participate in the negotiation, including South Korea, Taiwan, and even China (an unofficial comment from an official in the Ministry of Commerce). However, we doubt if current incumbents will allow newcomers to participate given how Japan has convoluted the whole process. More likely than the 12-country agreement will be reached first (the first tranche), and the second tranche of countries to participate would follow. With the opaque nature of TPP negotiation, it is quite inconspicuous to comment further, however, we do expect for better results in the next round, after multiple delays as negotiators wish to see improved progress in several bilateral issues (just like the US and Japan counterparts met over the weekend) before holding a ministerial-level conference.
th st

The week ahead

The next round of TPP negotiation will begin this week in Singapore, and it would attract investors attention from now until the closing on Feb 25 . Locally, the State Securities Commission meeting (possibly this Friday, Feb 21) with market participants (brokerage houses, fund managers, regulators) would be the focus as it will discuss and debate a series of hot topics for the 2014 plan implementation.
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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

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