Thursday, May 29, 2008

Vietnam Calling, Anyone?


It seems some readers may have gotten the wrong message fm my posting... i'm long term very bullish on vietnam (10-15 years out)...i'm very bearish now 1-3 years because there has been way way over-investments into Vietnam which is unsustainable in demand... the reliance on foreign Vietnamese buying is overdone... they have to contend with subprime issues themselves n foreclosures in the US and in Australia the BLR there is 8.5%, they have a huge burden on their own mortgages... there are not that many very cash rich foreign Vietnamese as one would think. The properties are generally 20-30% more expensive than the ones u get in Malaysia now. Hence the majority of the early buyers have been foreigners, mainly Singaporeans (gulp)..how now brown cow?

If you search Vietnam in my blog you won't find many bullish articles. Let's take stock now. The near euphoria on buildings residential and commercial projects have lured a lot of Singaporean firms and a smattering of Malaysians as well. How now brown cow?


a) Stock market: The Vietnam equity market has now lost half of its value from its 2007 high. Is that significant? Well imagine KLCI trading at 750-800 after hiting 1,500 last year. I think that would curb your spending somewhat. The nearly 8-year-old market jumped 23% last year amid investor excitement about Vietnam's economic potential but has slumped 55 percent so far this year, making it the worst performing market in Asia.

b) Technical Glitch: Trading on Viet Nam's stock exchange will remain suspended for a third consecutive day on Thursday following a computer system problem, officials said on Wednesday. Trading has been halted since Tuesday, but the Ho Chi Minh Stock Exchange and the State Securities Commission said it would resume on Friday if testing showed the system was stable.

c) Inflation & Liquidity: Earlier this month, market liquidity hit its lowest level in two years, an unintended victim of the government's battle to try and reduce double-digit inflation and a liquidity crunch at banks. The government estimated on Tuesday that annual inflation accelerated to 25.2% in May from 21.4% in April, one of the highest rates in Asia.

d) Dong Play-Play:
Viet Nam's dong fell to its lowest in more than three months on Wednesday, while the offshore forwards market priced in a 30% depreciation in the currency on worries over inflation and a widening trade deficit. The dong's spot rate stood at 16,216 to 16,221 per dollar by 0413 GMT, after the central bank, set the official exchange rate at 16,069 dong per dollar. That was the lowest since Feb. 20 when it was 16,070 dong per dollar. The State Bank of Vietnam allows banks to trade the currencies only within a band of +/- 1% of the official rate daily on the foreign exchange market. The government has said that during 2008 it would allow a 2% annual appreciation or depreciation of the dong.

The Snake Oil Sales Pitch

Vietnam is one of Asia's most open economies; its two-way trade is around 160% of its GDP, more than twice the ratio for China and over four times that of India. Once a relative newcomer to the oil business, today it is the third-largest oil producer in Southeast Asia, with an output of 400,000 barrels per day. What also makes Vietnam attractive is the potential spending power of its increasing population of 85 million. The interest by foreign investors in Vietnam began following the lifting of the United States trade embargo on the country in 1994. Billions of dollars of trade began to flow in. Its chief trading partners include Japan, Australia, the Asean countries, the US and western Europe.

As a result of land reform measures, Vietnam is now the largest producer of cashew nuts, with a one-third global share. It is also the largest rice exporter in the world. Vietnam has the highest percentage of land allocated for permanent crops, or 6.93% of any nation in the Greater Mekong sub-region. Besides rice, its key exports are coffee, tea, rubber and fishery products.

Foreign investment in the country has grown three-fold while domestic savings have quintupled. To support its strong growth, the World Bank has estimated that Vietnam needs to invest some US$140 billion in infrastructure projects over the next five years.The Reality Show

Vietnam achieved an annual GDP growth of around 8% from 1990 to 1997. Its 8.5% growth forecast for 2007 is achievable given its strong industrial output and focus on administrative reforms, and its ongoing battle against corruption. But having said that, Vietnam is still a relatively poor country, with a GDP of US$280.2 billion, translating to a per capita income of about US$3,300.

Malaysian companies in Vietnam

Scomi Group Bhd says it will focus on markets that have high growth potential such as Pakistan, India, Bangladesh, Vietnam and Indonesia in its next phase of expansion. The Berjaya group has made inroads into Vietnam, setting up a convenience store chain similar to the 7-Eleven that it operates in Malaysia. It is also looking into a US$700 million property project in Ho Chi Minh City, according to news reports.

Gamuda Land Bhd is involved in the Yenso Park, a US$1 billion mixed development project in Hanoi, while the managements of WCT Land Bhd and SP Setia Bhd recently indicated their interest in projects in Ho Chi Minh City. Other companies actively seeking participation in Vietnam's growth story include Kossan Rubber Industries Bhd, United Engineers Malaysia Bhd and PJ Development Bhd.

It is believed that more Malaysian companies will be jumping on the bandwagon in the future to take advantage of Vietnam's economic boom. Local companies that already have operations in Vietnam include APL Industries Bhd, Furniweb Industrial Products Bhd, Kian Joo Can Factory Bhd, Lion Diversified Holdings Bhd (via Parkson Group), Latitude Tree Holdings Bhd, KFC, Public Bank Bhd and Malayan Banking Bhd, among others.

Have fun guys!

p/s photos: Michelle Yip Suen & Flora Chan Wai San


4 comments:

Colin said...

That the country has developed at a phenomenal pace is without doubt. However the major constraints in Vietnam are Human Resources, there is too small a pool of technical and professional resources. Infrastructure also is a dampener but overall I think that they have the capability to overtake even Malaysia or Thailand.
The stock and property market has had a much needed correction. Don't think they are headed for a correction in that purchases were, unlike the US backed by cold hard cash

Kris said...

Yes. They have the potential to overtake Malaysia. They have alot of undeveloped landmass and the population is like 60% or more under 30!!!

see said...

If you want to gauge a country's potential you gotta look at their human resource ie the people. Vietnamese are very hardworking people working 2-3 jobs to cope with inflation, which is not good news for M'sia. But their infrastructure is terrible reminded me of M'sia in 1970s. They lots of money for infrastructure works from electricity to sewerage but if you very long term investor you should at Vietnam

Salvatore_Dali said...

it seems some readers may have gotten the wrong message fm my posting... im long term very bullish on vietnam (10-15 years out)...im very bearish now 1-3 years because there has been way way over-investments into Vietnam which is unsustainable in demand... the reliance on foreign Vietnamese buying is overdone... they have to contend with subprime issues themselves n foreclosures in the US and in Australi the BLR there is 8.5%, they have a huge burden on their own mortgages... there are not that many very cash rich foreign Vietnamese as one would think.