VIETNAM FM MONITOR – Jan 02 2019 FOR FOREIGN INVESTORS
Global markets fluctuated strongly in the last month of the year
The persistent trade war between the United States and China has not shown signs of ending, followed by the deceleration of these two economies and the expectation that the global economy will follow the same path in the coming years. In that context, the Fed still decided to raise interest rates by 25 basis points to 2.5% on December 19, 2018 and set the roadmap to increase two more times in 2019 and one time in 2020. Thiscaused a wave of sell-offs which caused major stock indexes to drop 10-20%. Oil prices fell to a 16-month record low. The risk levels of investment channels have increased significantly. Cash flows are looking for safe investment channels such as gold and bonds.
The DXY index fluctuated in the 96-97 zone. The JPY gained nearly 3% against the USD at times while the EUR was nearly flat due to positive movement on Italy’s budget problem and poor economic indicators. USD: CNY exchange rate decreased by 1%, back to 6.87, thanks to positive moves from China in the trade war with the US.
Vietnam monetary market closed a year of overcoming difficulties
In December, The State Bank of Vietnam (SBV) continued net cash injections into the monetary system of 35.239 trillion VND, mainly through treasury bills, purchasing all outstanding T-bills. The trading channel by term was still strong and the SBV’s net cash injections were 6.279 trillion VND. Total value of the open market operations (OMO) was 51.064 trillion VND.
The interbank rates in VND went flat then fell sharply on the last trading week of the month. Overnight interbank rates decreased from the range of 4.6-4.9%, which have been maintained for nearly 2 months, to around 4.1%. For the VND deposit rates, after a strong increase from the end of October to mid-December, they were also stable at 4.8-5.5% for the “less than 6- month” term and 5.5-7.6% for the “6 to under 12-month” term.
In December, the SBV continued to raise the central rate of VND/USD by 75 VND to 22,825 VND/USD. However, both the official and free-market exchange rates dropped sharply to 23,165/23,255 and 23,270/23,290, respectively. For the whole year of 2018, the VND depreciated by 2.2-2.3% against the USD, much less than the depreciation of EUR, GPB, and CNY of 4.5%, 5.7%, and 5.4%, respectively.
Exchange rate stability has still been a primary target of 2019
The average CPI index in 2018 only increased by 3.54% YoY in the current context of low pressure on inflation. The focus of monetary policy will be shifted towards stabilizing the exchange rates through controlling the liquidity of the VND. Credit growth in 2018 was estimated at about 14-15%, much lower than the previous three years. Foreign currency mobilization increased by about 17%, much higher than 2.1% in 2017, showing clearly the psychology of holding foreign currency in 2018. Maintaining the interest rate in USD of 0% as well as the large difference between interest rates in VND and USD will help reverse this sentiment to support exchange rate stability.
In 2019, if the CNY continues to depreciate, it will create certain pressure on the VND exchange rate and indirectly put pressure on interest rates. However, given the experience from the most unpredictable time when trade war broke out, market members as well as authority agencies will have better preparation to face with any change in exchange rate.
Therefore, the volatility of the USD/VND exchange rate in 2019 would be similar 2018. It is not likely that any foreseen events will negatively affect the market sentiment. The interest rates will stay at a high level and have a chance to increase if the exchange rate pressure appears.
The interest rates of Government bonds’ issuance went sideways and came closer to the level at the end of 2017
The amount of G-Bonds issued in December was 28.45 trillion VND, nearly 2.8 times higher than that of November. The coupon rates of G-Bonds for all tenors fell sharply in the first quarter of 2018 then continuously increased in the following months before going flat in December. The total value of G-bonds issued in 2018 reached 165.8 trillion VND, fulfilling 95% of the 2018 plan and up 4% compared to 2017. Bond yields in the secondary market decreased for the short- term maturities but were still higher than the end of 2017.
VN-Index closed at 892.54 at the end of December after a volatile year for the Vietnamese stock market. The index was down 3.81% in the last month, with a decrease of 9.31% for the year. P/E of VN-Index also corrected sharply from 18.9x in early 2018 to 15.62x at the end of the year.
Movements from foreign stock markets remain as worries for investors
S&P500 closed at 2506.85 at the end of the year, losing 9.18% of its value since the end of November. The improvement in trade relations between the US and China could not support the market in the context of the Fed decised to raise interest rate and forecasted the US economy to grow only 2.3% in 2019, down from the previous 2.5% in the September meeting.
The Chinese market contributed to the gloom of global stocks with negative data about retail sales and the index of industrial production (IIP) in November. These figures caused the international stock indexes to plunge sharply on Friday’s session, dragging the VN Index down with the strongest declining session of the month (losing 1.93% in value) on Monday (December 17).
Among blue chips, the increase of SAB and BID failed to balance the decrease of VIC and VHM
SAB and BID increased by 7% and 9.55%, respectively, in December, being the most supportive stocks for the VN-Index. Sabeco increased its foreign ownership ratio from 49% to 100% on December 11, while information revolved around BIDV’s divestment of KEB Hana Bank.
A bright spot came from foreign trading
While foreign investors kept selling on HOSE, with a net selling value of order-matching transactions of 392 billion VND in November, this trend would have reversed in the last month of the year with 282 billion VND of net buying. Including the put-through transaction. Net foreign buying on HOSE was 730 billion VND.
In 2018, net foreign buying was at 42.2 trillion VND, mainly due to put-through transactions (58.7 trillion VND in value). VHM and MSN were among of the top net buying stocks with values of 25.9 trillion VND and 13.3 trillion VND respectively. On the other side, foreign investors focused on net selling VIC with the value of 9.98 trillion VND.
Liquidity in the stock market improved but was still less than the derivative market
Contrary to the sluggish trading in November, liquidity on all three stock exchanges rose sharply in the last month of 2018 with an average monthly turnover of 5.35 trillion VND, up 20% MoM.
The volatile December also made the derivative market more attractive to investors. The average derivatives trading volume
In 2018, the average trading value in the stock market reached VND 6.6 billion/session, up 30.9% YoY. Benefiting from the correcting trends of the stock indexes, the derivatives market recorded the highest liquidity in July with turnover of VND 11.7 trillion/session. The average derivatives turnover in 2018 was at VND 7.3 trillion/session, 10% higher than the stock market.
per session reached 127,824 contracts in December, up 62.2% compare to the average 12 months in 2018. The daily average derivatives trading value in December was 11.4 trillion VND, double the average of all three stock exchanges.
Contact Big Money Team right now for advice
Telephone: Mr. Vinh: +84 978 821 018
Address: 1C Ngo Quyen Street, Ly Thai To Ward, Hoan Kiem District, Hanoi.