PP 7767/09/2010(025354)

Vietnam
Economic Highlights
•
MARKET DATELINE

30 July 2010

Economic Data Showing Signs Of Weakness In July

◆ .
Vietnam’s industrial production moderated to 12.3% yoy in July, after reaching a high of +14.6% in June.
This was the slowest growth in five months, suggesting that industrial activities have turned weaker. The slowdown
was due to a slowdown in output of the non-state sector, while production of the FDI sector softened. These were
made worse by a moderation in output of the state sector.

◆ Retail sales eased to 26.4% yoy in January-July in 2010, from +26.7% yoy in the first half of the year and
compared with +18.3% in the corresponding period of 200. This suggests that consumer spending has eased
somewhat in the last two months.

◆ Exports, on the other hand, strengthened to 17.5% yoy in January-July 2010, compared with +15.7% in
the first half of the year, indicating that Vietnam’s exports remained resilient amidst signs of a slowdown in global
demand. Stronger growth in exports was on account of a pick-up in the exports of rice, wooden products, clothing
and footwear. These were, however, offset partially by a moderation in the exports of electronic & computer parts,
machinery equipment & parts and electric wires & cables. In the same vein, the exports of crude oil fell by a larger
magnitude, while the exports of coal and petroleum products slowed down during the period.

◆ Vietnam’s headline inflation moderated to 8.2% yoy in July, from +8.7% in June and the peak of +9.5% in
March. This was the fourth straight month of easing and the slowest pace of increase in six months, suggesting that
price pressure is easing. This, coupled with prospects of a slowdown in global economy, suggests that the State
Bank of Vietnam is not likely to raise its key policy rate in the near term.

◆ As a whole, July’s key economic data suggest that economic activities are beginning to show signs of
weakness in the 3Q, after growing at a faster pace of 6.2% yoy in 1H 2010. As a result, the economy will likely
expand at a slower pace in 2H of the year. Nevertheless, for the full-year, we believe the Vietnamese economy
will likely expand at a faster pace of 6.4% in 2010, compared with +5.3% in 2009. Meanwhile, we expect
the Dong to remain weak and it will likely weaken to around 19,500 by end-2010.

Vietnam’s industrial production moderated to 12.3% yoy in July, after reaching a high of +14.6% in June (see
Table 1). This was the slowest growth in five months, suggesting that industrial activities have turned weaker. The
slowdown was due to a slowdown in output of the non-state sector, which grew at a more moderate pace of 12.4% yoy
in July, compared with +14.4% in June and +11.4% in May. Similarly, production of the FDI sector softened to 15.8%
yoy in July, after reaching a high of +19.3% in June. This was on account of a slowdown in the production of non-oil
& gas related products, which was mitigated by a smaller decline in the oil & gas output during the month. These were
made worse by a moderation in output of the state sector, which slackened to 6.3% yoy in July, the third consecutive
month of easing and from +6.9% in June. The slowdown was attributed to a decline in output of the locally-managed
sub-sector. This was, however, mitigated by a pick-up in output of the centrally-managed sub-sector. Mom, industrial
production rebounded to +3.6% in July, from +2.2% in June but weaker than +5.0% recorded in April, indicating that
factory output is slowing down but remains resilient.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 4
exclusively available for download from www.rhbinvest.com
 30 July 2010

Table 1
Industrial Output at Contant 1994 Prices
2009 2010
Sep Oct Nov Dec Jan Mar Apr May Jun Jul YTD
%yoy

Total 13.8 11.9 13.0 13.4 28.4 14.0 13.0 13.8 14.6 12.3 13.5
State Sector 8.5 6.8 6.1 6.5 23.1 5.1 8.7 8.2 6.9 6.3 8.9
Centrally Managed 9.8 9.6 8.4 8.6 24.9 7.9 11.5 10.9 7.8 9.1 12.1
Locally Managed 3.1 -4.0 -2.8 -1.6 16.2 -3.9 -2.0 -1.8 3.2 -4.6 -3.8
Non-state Sector 16.5 15.7 17.3 17.0 31.1 14.4 10.9 11.4 14.4 12.4 12.5
FDI Sector 15.0 12.1 13.9 14.9 29.1 18.8 17.6 19.2 19.3 15.8 17.0
Oil and Gas 15.9 2.1 -3.3 -8.6 -16.6 10.7 -10.3 -4.1 -3.6 -1.8 -5.6
Other 14.9 13.3 16.1 18.2 36.7 19.8 21.6 22.4 22.2 17.8 20.2

Source : The General Statistics Office of Vietnam

Similarly, retail Table 2

sales eased to Cumulative Retail Sales
26.4% yoy in 2009 2010
January-July in
J-Jun J-Sep J-Oct J-Nov J-Dec Jan J-Mar J-Apr J-May J-Jun J-Jul
2010, from +26.7% ( YTD, % yoy )
yoy in the first half of
the year and Total 20.0 18.6 18.0 18.5 18.6 23.1 24.1 25.0 26.9 26.7 26.4

compared with By Ownership

+18.3% in the State -3.7 0.5 -1.5 -1.2 1.4 -1.0 2 0 . 3 4 0 . 4 4 4 . 3 44.9 41.5

corresponding period Collective 1 4 . 9 1 5 . 1 1 7 . 6 1 7 . 5 1 8 . 8 1 9 . 2 2 8 . 7 3 4 . 1 3 7 . 6 4 0 . 9 36.5

of 2009 (see Table 2). Individual 2 2 . 8 2 0 . 0 2 1 . 3 1 9 . 4 2 2 . 9 2 7 . 1 1 8 . 7 1 5 . 7 1 6 . 9 1 4 . 6 14.6

Private 23.7 23.5 20.9 25.4 20.3 25.0 34.8 37.3 39.8 42.3 42.2
This suggests that
FDI 19.7 12.4 0.6 6.7 9.5 24.3 26.3 30.3 32.7 41.1 43.4
consumer spending
has eased somewhat Source : The General Statistics Office of Vietnam
in the last two
months. The moderation was due to a slowdown in retail sales at collective controlled and state owned enterprises, which
grew at a slower pace of 36.5% and 41.5% yoy respectively in January-July, compared with the corresponding rates of
+40.9% and +44.9% in January-June. This was made worse by a slight moderation in private controlled enterprises,
which eased to 42.2% yoy in January-July, from +42.3% in January-June. These were, however, mitigated by a pick-
up in retail sales at FDI controlled enterprises, which strengthened to +43.4% yoy in January-July, from +41.1% in
January-June. Retail sales at individual controlled enterprises, on the other hand, remained stable at 14.6% yoy in
January-July, the same rate of increase as in January-June. In
terms of sectors, slower retail sales were reflected in trade, Table 3 External Trade
hotel & restaurants, tourism and services sectors.
Exports Imports Trade

Exports, on the other hand, strengthened to 17.5% Balance

yoy in January-July 2010, compared with +15.7% in the (YTD, % yoy) (YTD, US$m)
first half of the year (see Table 3) and -13.4% in the
corresponding period of 2009, indicating that Vietnam’s exports ‘09 J-Mar 2.4 -45.0 1,647
remained resilient amidst signs of a slowdown in global demand. J-Jun -10.1 -33.7 -2,108
This was driven by a stronger growth in domestic companies’ J-Sep -14.3 -24.9 -6,542
exports and a pick-up in exports of multinational companies J-Dec -9.7 -14.7 -12,246
during the month. Stronger growth in exports was on account
of a pick-up in the exports of rice, which strengthened to 3.4% ‘10 Jan 28.1 86.6 -1,300
yoy in January-July, from +0.4% in the first half of the year J-Mar -1.6 37.6 -3,511
and a smaller decline in the exports of coffee (-10.4% yoy in J-Apr 8.9 35.6 -4,650
January-July versus -17.3% in January-June) (see Table 4). J-May 12.6 29.8 -5,376
These were aided by faster increases in the exports of wooden J-Jun 15.7 29.4 -6,728
products, clothing and footwear, which accelerated to +33.5%, J-Jul 17.5 25.5 -7,443
+17.4 and +13.8% yoy respectively in January-July, from the
corresponding rates of +32.5%, +17.2% and +10.9% in 2 0 0 9 (Jan-Jul) -13.4 -31.7 -3,387
January-June, while the exports of precious stones & metal fell 2 0 1 0 (Jan-Jul) 17.5 25.5 -7,443
by a smaller magnitude during the period. These were, Source : The General Statistics Office of Vietnam

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 4
exclusively available for download from www.rhbinvest.com
 30 July 2010

Table 4
Cummulative Exports And Imports by Commodity
2009 2010
J-Sep J-Oct J-Nov J-Dec Jan J-Mar J-Apr J-May J-Jun J-Jul

Exports: (YTD, %, yoy)

Agriculture
Fishing -9.5 -8.7 -6.2 -6.7 27.9 14.5 20.2 18.0 14.2 11.2

Coffee -19.7 -17.3 -17.4 -19.0 -4.7 -31.0 -22.8 -21.0 -17.3 -10.4
Rice -7.8 -7.8 -5.8 -8.0 50.6 -16.8 -3.1 -3.0 0.4 3.4
Mining
Coal -21.2 -19.4 -11.3 -4.5 68.6 21.2 27.7 34.4 30.4 29.2
Crude Oil -45.6 -43.0 -41.7 -40.0 24.5 -9.6 -9.2 -17.4 -17.8 -18.9
Manufacturing
Rubber -41.0 -41.2 -32.4 -25.2 210.0 104.0 141.7 85.5 81.3 85.1
Wooden Products -14.2 -14.0 -11.1 -9.9 37.0 26.3 31.6 31.1 32.5 33.5
Clothing -1.0 -1.5 -1.1 -1.3 3.9 12.3 18.9 17.1 17.2 17.4
Footwear -13.7 -16.1 -15.9 -15.8 6.3 10.1 5.7 7.7 1 0.9 13.8
Precious stones/Metals 278.6 269.3 264.0 243.1 -87.1 -98.1 -97.0 -65.1 -48.5 -40.7
Electronics/Computer Parts 0.0 0.1 1.1 5.1 56.4 40.7 39.1 30.4 31.4 29.0
Machinery Equipments/Parts 0.0 -0.4 2.3 9.1 139.9 66.5 74.7 72.9 67.4 62.8

Imports:
Petroleum -52.6 -47.9 -45.3 -43.8 53.0 33.2 19.6 16.3 11.6 8.4
Raw Plastic -13.7 -10.9 -7.4 -4.1 114.3 53.0 54.7 50.6 49.3 38.5
Fabrics -8.7 -8.6 -6.9 -5.2 65.8 13.2 19.0 23.9 27.0 34.3
Footwear Materials -23.7 -23.2 -20.8 -17.8 68.5 21.6 24.8 31.7 35.7 35.4
Electrical/Computer Supplies -0.6 -0.3 3.2 5.9 123.5 53.1 43.7 39.1 37.8 32.4
Auto -23.9 -12.0 -3.6 2.5 156.6 66.0 57.0 39.5 27.6 19.5
Machinery Equipments/Parts -15.4 -13.0 -10.3 -5.6 42.3 10.8 14.8 11.3 13.1 14.0

Source : The General Statistics Office of Vietnam

however, offset partially by a moderation in the exports of electronic & computer parts, which eased to 29.0% yoy in
January-July, from +31.4% in January-June. Similarly, the exports of machinery equipment & parts and electric wires
& cables slowed down to +62.8% and +79.5% yoy respectively in January-July, from the corresponding rates of +67.4%
and +86.9% in January-June. In the same vein, the exports of crude oil fell by a larger magnitude of 18.9% yoy in
January-July, compared with -17.8% in January-June, while the exports of coal and petroleum products slowed down
during the period. Also, the exports of fishing products eased to +11.2% yoy in January-July, from +14.2% in January-
June. Imports, however, slowed down to +25.5% yoy in January-July, from +29.4% in the first half of the year and
compared with -32.0% in the corresponding period of 2009. This was due to softer imports by FDI sector, suggesting
that exports may turn softer in the months head. Similarly, imports of domestic sector softened during the period,
suggesting that domestic demand will likely moderate as well.

Vietnam’s headline inflation, on the other hand, moderated to 8.2% yoy in July, from +8.7% in June and the
peak of +9.5% in March (see Table 5). This was the fourth straight month of easing and the slowest pace of increase
in six months, suggesting that price pressure is easing. Slower increases in the costs of housing & construction materials
and transport, which eased to +13.5% and +9.8% yoy respectively in July, from the corresponding rates of +16.2% and
14.8% in June contributed to the moderation. These were aided by a slowdown in the costs of healthcare, sports &
entertainment and education as well as the prices of beverages & tobacco. These were, however, offset partially by a
pick-up in prices of food & foodstuffs, which inched up to +9.6% yoy in July, from +9.3% in June, while the costs of
communications fell by a smaller magnitude during the month. The prices of textiles & footwear and household
appliances, on the other hand, remained stable during the month. The moderation in inflation would provide more room
for the State Bank of Vietnam to keep its key policy rate unchanged since it raised it to 8.0% in December 2009. This,
coupled with prospects of a slowdown in global economy, suggests that the State Bank of Vietnam is not likely to
raise its key policy rate in the near term. Indeed, policymakers have been urging banks to reduce interest rates
in order to boost economic activities. Vietnam’s commercial banks have agreed to lower lending rates to about 12%
and deposit rates to about 10% beginning July, from as high as 14.5% and 11.5%, respectively.

A comprehensive range of market research reports by award-winning economists and analysts are Page 3 of 4
exclusively available for download from www.rhbinvest.com
 30 July 2010

As a whole, July’s key economic data suggest that economic activities are beginning to show signs of
weakness in the 3Q, after growing at a faster pace of 6.2% yoy in 1H 2010, compared with +5.8% in the 1Q. As
a result, the economy will likely expand at a slower pace in 2H of the year. Nevertheless, for the full-year, we believe
the Vietnamese economy will likely expand at a faster pace of 6.4% in 2010, compared with +5.3% in 2009.
Meanwhile, Vietnam’s long-term foreign and local-currency ratings were cut to B+ from BB- with a stable outlook by Fitch
Ratings on 29 July. Fitch is concerned about the country’s budget deficit, which is expected to stay high at 7.6% of GDP
in 2010, and the government is financing it partly through the issuance of foreign-currency debt even when the nation
is running a current account deficit. The International Monetary Fund said in June that Vietnam’s foreign reserves had
declined to the equivalent of seven weeks of imports from less than two-and-a-half months in December. This might
have implication on the country’s currency, which has been devalued twice to ease pressure on its current account deficit.
The first devaluation was about 5% against the US dollar and on 27 November in 2009. The second was on 10 February
this year and the Dong was devalued by 3.3% against the US dollar. We expect the Dong to remain weak in view of
the widening trade deficit, which will likely be mitigated by a pick-up in an inflow of foreign direct investment (FDI). We
expect the Dong to weaken to around 19,500 by end-2010.

Table 5
Weights In The CPI
2008 2009 2010 2010 2009 2010
Jun Jul Jun Jul (Jan-Jul) *
Group: %,yoy %,mom %,yoy %,Cumyoy

Food and footstuffs 22.9 6.1 +0.4 +0.2 9.3 9.6 12.5 9.3
Food 29.7 11.2 -0.8 -1.0 9.3 9.3 9.6 11.0
Foodstuffs 20.3 3.6 +0.7 +0.5 9.2 9.8 11.3 8.7
Beverages & cigarette 4.5 5.7 +0.6 +0.4 8.0 8.0 10.8 7.9
Garment, footwear, hat 3.9 3.5 +0.3 +0.4 6.9 6.9 10.4 6.7
Housing/Construction materials 8.5 10.3 +0.0 -0.5 16.2 13.5 2.5 15.3
Household appliances 2.7 1.3 +0.5 +0.4 5.1 5.1 10.4 5.1
Medical products/Healthcare 3.6 0.4 +0.2 +0.2 3.3 3.1 7.9 3.2
Transport 12.0 10.3 -0.7 -0.9 14.8 9.8 -2.7 16.4
Education 0.8 2.3 +0.1 +0.1 6.5 6.4 5.9 6.4
Culture, sport, entertainment 2.6 2.5 +0.4 +0.3 4.0 3.8 7.6 3.0
Other consumer goods & services 5.1 7.4 +0.5 +0.3 11.3 11.2 11.5 11.9

TOTAL CPI 13.5 5.3 +0.2 +0.1 8.7 8.2 9.1 8.7

*: RHBRI’s estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB
Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances
as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be
reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB
Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy
or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may
from time to time have an interest in the securities mentioned by this report.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI
recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of
a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and
objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out
of the use of all or any part of this report.
RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing
activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking
and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its
own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.
“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the
respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking
or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this
report or in RHBRI’s previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and
may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking
personnel.
The research analysts, economists or research associates principally responsible for the preparation of this research report have received
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm
revenues.

Page 4 of 4
A comprehensive range of market research reports by award-winning economists and analysts are
exclusively available for download from www.rhbinvest.com