This volume: February 2015

Tran Thi Thanh Thao

Research Analyst

T: +84 (4) 3726 2600

Thao.tranthithanh@mbs.com.vn
Tran Buu Quoc
Institutional Client Services (ICS)

EXECUTIVE SUMMARY

The Macro economy seemed to be positive in January with increases in production

and consumption before Tet holiday. CPI declined slightly by 0.2 MoM thanks to
decrease in fuel prices. The PMI stood about 51.5, still indicating manufacturing
conditions are expanding in the 17th consecutive month. Consumption demand rose
as total retail sales of goods and services in Jan 2015 was estimated to reach VND
275 trillion, up 11.95% YoY.

Quoc.TranBuu@mbs.com.vn

Inflation continued to decrease to 0.94% YoY in January. We expect that CPI will go up
slightly MoM in February 2015 thanks to high consumption demand in the holiday;

MBS Vietnam Research

Website: www.mbs.com.vn
Bloomberg: MBSV<GO>

The PMI fell from 52.7 in December 2014 to 51.5 in January 2015, still indicating
manufacturing conditions are expanding. The PMI is expected to improve in 2015, yet
might fall in February due to the Lunar New Year holidays;

Please turn last page for

Disclaimer

Both exports and imports had fairly strong increases in the first month of the year. The
total export value in January was estimated to be USD 12.9 billion, 9.7% higher YoY, while
the import value came to USD 13.4 billion, up 35.5% YoY;
In January 2015, the total registered foreign direct investment into Vietnam was USD
663.44 million, up 67.1% YoY. The disbursed FDI was about USD 505 million, 8.6% higher
YoY;
The forex market remained stable in January. The VND/USD tended to decline after the
SBV raised average interbank exchange rates in the beginning of the year;
The SBV kept net injecting money via SBV bills in January to support banking liquidity;
Bond market remained active in January thanks to high bond demand. Bond interest rates
declined slightly compared to last month.

INFLATION

CPI in January saw a small 0.2% MoM decrease and a 0.94% YoY increase. Prices of
construction materials and transportation declined considerably since the global oil
prices stayed at low levels. Consumption demand rose as total retail sales of goods and
services in Jan 2015 was estimated to reach VND 275 trillion, up 11.95% YoY.
CPI in January declined by 0.2% MoM and increased by 0.94% YoY. Januarys inflation was low due
to further energy price falls. Domestic fuel and oil prices were adjusted downward at the end of
December and the beginning of January, reducing prices of transportation by 3.96% and prices of
construction materials by 1.09% MoM. However, since spending demand prior to Tet usually soars,
prices for food and foodstuffs as well as textiles went up by 0.28% and 0.51%, respectively, in
January.
Consumption demand surged as total retail sales of goods and services in January is estimated to
be VND 275 trillion, up by 11.95% YoY (real growth rate), much higher than those since 2011. We
believe CPI will inch up in February due to greater consumption demand during the holidays, but in
a moderate degree, due to the affects from the domestic oil price slumps. Inflation for the year is
anticipated to come to about 4-5%.
Chart 1: Monthly CPI Inflation (%)

Source: GSO
Chart 2: Contribution to CPI Inflation by Category (%, yoy)

Source: GSO

The increase in prices of food and foodstuffs accounted for nearly 90% of the 0.94% increase in
the CPI. It was followed by the educational items with a contribution of 51% of the total CPI
increase. Also notably, prices of garment-textile-shoes and prices of house appliances accounted
for 26% and 21% respectively of the total CPI increase. Prices of housing & construction
materials and prices of transportation dropped strongly, helping to decrease inflation in January.
World crude oil prices fell sharply to 46$/barrel in Jan and bounced back to about 57$/barrel in
the beginning of Feb. According to the World Bank, crude oil prices are expected to vary about
53$/barrel in 2015 and increase slightly by 4$/barrel next year. From that net oil importing
countries including Vietnam will get benefits from that. These include low input costs, low
inflation, high production and consumption. By contrast, benefits of net oil exporters will drop
sharply because oil price is not likely to go up to over 110$/barrel in the near future.
Chart 3: World crude oil (FOB) and domestic gasoline price (A92)

Source: EIA and MoF

OTHER ECONOMIC INDICATORS

The PMI fell from 52.7 in December 2014 to 51.5 in January 2015, still indicating
manufacturing conditions are expanding. The PMI is expected to improve in 2015,
yet might fall in February due to the Lunar New Year holidays.
The manufacturing PMI reached 51.5 in January 2015, slightly down from the 52.7 reading in
December 2014. However, this is still the 17th consecutive month of business improvements in
manufacturing. Both output and number of new orders surged in the beginning of 2015, though
in a slower pace than in December. Meanwhile, the number of new export orders edged up only
dimly due to lower demand from these markets. Moreover, the oil price cuts have caused input
costs to fall, followed by selling price drops in the 4th consecutive month with the steepest
decrease in 2.5 years. Accordingly, the PMI is expected to continue to improve in 2015, but
might drop slightly MoM due to the Tet holidays.

Chart 4: Monthly PMI 2011-2014

Source: Bloomberg

Both exports and imports had fairly strong increases in the first month of the year. The total
export value in January was estimated to be USD 12.9 billion, 9.7% higher YoY, while the import
value came to USD 13.4 billion, up 35.5% YoY. Accordingly, a trade surplus amount of USD 500
million was recorded in January, 3.9% of export value. In particular, the FDI firms were net
exporters of USD 690 million, and the domestic firms were net importers of nearly USD 1.2
billion. In 2015, foreign investment into Vietnam is expected to swell, leading to large imports of
manufacturing machineries. Moreover, in 2015, coal importing demand will rise for running
thermal power plants and therefore this put more pressure on trade balance.
Chart 5: International Trade ($ billion)

Source: GSO

In January 2015, the total registered FDI into Vietnam was USD 663.44 million, up
67.1% YoY. The disbursed FDI was about USD 505 million, 8.6% higher YoY.
FDI is usually low in the first months of the year due to the seasonal factors. However, the
investment attracted in January this year scored a strong YoY growth, implying positive signals
about FDI attraction in 2015. Notably, the main FDI flows were in manufacturing, accounting for
91.3% of total registered investment. Wholesales and retails were in second, with a registered
investment of USD 30.79 million, taking up 4.6% of total investment.

Chart 6: Monthly Foreign Direct Investment ($ billion)

Source: GSO

POLICY UPDATE

The forex market remained stable in January. The VND/USD tended to decline after
the SBV raised average interbank exchange rates in the beginning of the year.
The VND/USD rates fell in January. USD demand remained steady but the supply tended to rise
as USD was sold for VND to satisfy consumption demand before Tet. After 5 months, the SBV
bought USD reserves again. The interbank VND/USD rates varied around 21,315-21,375.
Unofficial rates stood around 21,390-21,415. The VND/USD rates are expected to remain stable
until New year holiday but they probably increase after Tet because import demand for
productions often goes up seasonally.
Chart 7: Foreign Exchange Rate VND/USD

Source: SVB, VCB and others

In 2015, not many changes were made to monetary policies. The SBV aims to cut interest rates
for medium and long tenors by 1% to around 10%. Borrowing demand tended to rise evidently
since Q4, 2014. Most credit institutions expect that credit balance will grow by 3.5% in Q1 and
14-15% at the end of 2015.

According to data from the VAMC, since the company started trading debts, it has purchased
VND 107 trillion of non-performing debts from banks, including VND 67 trillion in 2014 alone.
The VAMC also received VND 4 trillion from reselling/collecting some of these debts in 2014,
surpassing target by VND 2.5 trillion. In 2015, the VAMC plans to buy from VND 70 to 100 trillion
and handle about VND 8 to 10 trillion of bad debts, doubling 2014s results. The banking reform
began at the end of 2013 with the establishment of VAMC which helped to lower the nonperforming debts of the banking system. However, the reform is still slow and not strongly
efficient. In 2015, the SBVs efforts in continuing the bank reform and boosting the purchase and
settlement of bad debts should support a healthier banking system.

The SBV kept net injecting money via SBV bills in January to support banking
liquidity.
The SBV net injected money via repos and SBV bills last month to support banking liquidity as
interbank interest rate went up considerably before Tet. About VND 7.72 trillion was net
withdrawn via repo in the OMO. Besides, the SBV issued VND 64.3 trillion of bills to withdraw
money out of the system. Whereas, about VND 75 trillion of SBV bills matured. Therefore, the
SBV net injected about VND 2.94 trillion via repos and bills last month. Because payment
demand often increases more rapidly before Lunar New Year, we expect that the SBV will net
inject money via OMO and bills in the coming time.
Chart 8: Net Injection via OMO (VND, trillion)

Source: Bloomberg and the authors calculation

Bond market remained active in January thanks to high bond demand. Bond interest
rates declined slightly compared to last month.
Bond auctions achieved high successful rates with the offering of State Treasury, VBSP and VDB.
About VND 14.4 trillion of VGBs were successfully issued with successful ratio of 96%. Most of
them were 5 - 15 year bonds and bid to ask ratio reached about 2.3 times. Besides, demand for
guaranteed bond also stood high. About VND 10.6 trillion of VDB and VBSP bonds were issued
with high successful ratio of 70%. Bond interest rates went down slightly in January owing to
high bond demand. In Q1, credit growth is often stood low and the number of matured VGBs
stands high, therefore banks demanded large number of bonds.

Chart 9: Vietnams Government Bonds Issuance (VND/trillion)

Source: HNX and others

State budget revenues in Jan 2015 were estimated at VND 35.3 trillion, equal to 3.9% of the
projection. Total expenditures reached VND 42.2 trillion, accounting for 3.7% of the plan. Thus,
the budget deficit in Jan stood about VND 6.9 trillion. It is expected that in 2015, state budget
revenues will be about VND 921 trillion, budget expenditure stands about VND 1,147 trillion and
budget deficit would reach VND 226 trillion, equivalent to 5% of GDP, lower than the deficit of
5.3% GDP in 2014.
Chart 10: Vietnams State Budget (VND, trillion)

Source: GSO
DATA APPENDIX
T2

GDP (%, YoY, accumulated)

Industrial output (%, yoy)

T3

T4

T5

4.96

T6

T7

T8

5.18

T9

T10

T11

5.62

T12

T1

5.98

15,2

4.7

5.9

6.1

7.5

6.7

6.5

7.9

11.1

9.6

17.5

Export ($ million)

11000

12300

13100

12400

12400

12400

13000

12600

14100

13200

12900

12900

Import ($ million)

9600

12500

12300

12800

12700

12700

12900

13200

14100

13500

14000

13400

Trade deficit ($ million)

1200

300

400

400

200

300

100

600

300

(1100)

(500)

Contracted FDI ($ million)

1140

1800

1520

650

1340

2680

700

950

2520

3630

2900

663

Realized FDI ($ million)

660

1730

1150

600

1150

1050

1100

1000

1300

1000

1200

550

Inflation (%, mom)

0.55

-0.44

0.08

0.2

0.3

0.23

0.22

0.4

0.11

(0.27)

(0.24)

(0.2)

OMO rate (%)

VND/USD (VCB, e-o-p)

5.5

21,130

21,120

21,120

21,210

21,330

21,230

21,200

21,220

21,270

21,396

21,405

21,375

PRODUCT
This product covers the latest information about Vietnam macroeconomics. Reports focus on important issues
such as inflation, economic growth, trade balance, exchange rate and macro policies. The product also forecasts
figures which have impacts on stock market.

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