TAKING FULL ADVANTAGE OF TRADE WARS FOR FOREIGN INVESTORS
Growth of many sectors was negative, Industrial Production slowed
The overall Index of Industrial Production (IIP) grew by only 7.7% YoY in October, the lowest level in five months. In particular, IIP of Manufacturing was up only 10.1% YoY, the lowest level in 5 months and IIP of Mining and Quarrying was down 9.5% YoY. The low IIP growth rate could be traced to the downtrend that occurred over the past several months and the high base in the same period of 2017.
This October saw a sharp rebound of industrial production due to the acceleration of the Natural gas explorating and Telephone manufacturing sectors. The Competitive Power Generation Market was paused in October, thus the thermal power plants using natural gas could increase output volume, which indirectly boosted natural gas production and the Mining sector’s growth. In October 2017, total natural gas output reached 910 million cubic meters, up 14% compared to the average of the first 9 months in 2017. While in October 2018, natural gas output was only 750 million cubic meters, down 10% compared to the average of the first 9 months in 2018.
Following the success of the Galaxy S8 in April 2017, the Galaxy Note 8, launched in September 2017, has pushed up production and exports dramatically. Telephone exports in October 2017 reached USD 5.2 billion, +85.5% YoY, the highest level in 53 months. However, this October, Telephone exports were only USD 4 billion, pulling down the IIP of Electronics manufacturing sector by 1.5% YoY.
The Pharmaceutical sector, after a period of high growth, suddenly shifted to negative growth of -0.2% YoY while growth in October last year was also relatively low. The positive point was that although domestic production slowed down, imports of pharmaceutical products in October also fell by 14.9% YoY. It implied that the safety regulations for Pharmaceutical sector have been still working and this sector could regain growing momentum in the upcoming months.
The IIP of Motor vehicle production rose at a lower rate from 35% in September to 14.2% in October, even though Motor vehicle imports in October were basically unchanged. From August to October, Motor vehicles imports were over USD 200 million each month while the average of the first 7 months in 2018 was only USD 66 million. Decree 116 creates some technical barriers to the import of completed motor vehicles to Vietnam, thus the number of imported motor vehicles has decreased since the beginning of the year. Over time, importers have overcome/met new regulations and thus, the importation of Motor vehicles has accelerated. This is likely to impact the domestic Motor vehicles industry in the upcoming months.
Textile & Clothing and Iron & Steel, both sectors have high IIP growth, continued to maintain stability. IIP of Textile in October reached 15.7% YoY, the highest since the beginning of the year, while Clothing was up 18.1% YoY. Metal production was up 39.2% YoY, the highest in 18 months. A favorable export market is the main driving force for Textile & Clothing with total Textile & Clothing exports in October up 21.6% YoY. In contrast, the Basic metals sector had a weakening signal when the export value of Iron and Steel in October only increased by 5.1% YoY, the lowest in 30 months.
A new emerging sector that should be considered is Furniture manufacturing (bed, wardrobe, table, chair, etc). The US-China trade war may have a positive impact on Vietnam’s Furniture sector as the sector’s growth in August was up over 20% YoY while the average of the first 7 months in 2018 was up 14% YoY. Furniture exports in October also achieved a positive growth of 18.5% YoY. Furniture manufacturers in China which were under pressure of trade war have taken into account the idea of moving production lines abroad and Vietnam could be a destination. It was not only a positive signal for the Furniture sector but also for many others such as industrial parks, logistics, etc. More importantly, if the government has a proper FDI attraction strategy, Vietnam can take full advantage of the US-China Trade war.
Retail Sales of Consumer goods and Services in October increased at the highest level in 10 months, by 9.31% YoY (adjusted for inflation), of which the main contributor was Retail sales of goods. Retail sales in October reached a multi-year peak at VND 286 trillion, up 14.2% YoY (not adjusted for
inflation). Cumulatively for the first 10 months, Retail Sales increased by 12.2% YoY, of which Food was up 13% YoY and Textile & Clothing was up 12.6% YoY.
In contrast to Retail sales of goods, Accommodation and catering services increased by only 8.4% YoY, the lowest level in 19 months due to lower growth of Travel services. Chinese visitors to Vietnam in October reached the lowest level in 11 months was 371 thousand arrivals and cumulatively for the first 10 months of 2018 was 4.18 million arrivals, up 28.8% YoY (over the same period last year was up 45.6% YoY).
Carriage of passengers and cargo showed a trend of improvement. Volume of traffic carried in the first 10 months of this year grew by 12.8% YoY for Passengers and 14.1% YoY for Cargo. Passengers carried by airway increased by 7.3% YoY, double the average of previous two months. Cargo carried by seaway increased by 12.2%YoY, the highest level for many years.
Cargo carried by seaway accounted for 51% of total volume of traffic carried, so the improvement in this sector had a great impact on the overall shipping industry. In addition, the high volume of traffic was a positive sign implying that economic activities, trading goods, is still in good condition even though in terms of value, exports in the first 10 months of 2018 increased much more slowly than the same period last year (+ 13.7% in the first 10 months of 2018 vs. + 21.8% in the same period of 2017).
Overall, the October macroeconomic data show that the industry might slow down in the final quarter and be partially offset by Services. For sectors, the growth will be diversified. Electronics may rise at a slow pace, or even fall, but other industries will have high growth and a certain level of diffusion.
The US-China trade war has some initial impacts and on the positive sides, FDI flows should be noteworthy. The trend of shifting production from China due to fears of a trade war could bring opportunities to Vietnam. With CPTPP, Vietnam has advantages to make a difference with other developing countries at the same level.
Capturing capital withdrawal from China will boost Vietnam’s economy to recover faster because FDI enterprises always have the advantages of technology and market that domestic enterprises need more time to build.
(Source: SSI Securities Services)
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