NEWSLETTERSecure Site · 2019. 12. 12. · NAV of VF1 as at 30/09/2009 reached VND2,818.1 billion...

Issued by October 22th,2009

www.vinafund.com

NEWSLETTERQUARTER III/2009 VFM

HIGHLIGHTED INVESTMENT 13

15

18

This Newsletter is issued by VietFund Management (VFM). All statistics relating to VF1’s & VF4’s performance are approved by Custodian. This newsletter is

aimed to provide information on activities of VF1, VF4 investment funds and other services. The other mentioned statistics relating to Vietnam stock market

are collected from reliable sources; however, VFM does not ensure that all these statistics are totally adequate and exact. VFM is neither entitled to update,

revise the newsletter in any kind nor inform readers in terms of opinion, forecast or estimation when there is changes. The use of any information herein (partly

or totally), except for reference purpose, shall be approved in writing by VFM.

DiScLaiMER

Investor care activities in QuarterSome of the Funds Representative Board activitiesNews related to VFM’s partner’s activities

content

INVESTOR RELATIONS (IR) ACTIVITIES

MACRO ECONOMIC UPDATES BELIEF AND CHALLENGES

VF1 INVESTMENT FUND Fund certificate trading review Movement in NAV Portfolio review Investment portfolio Top 5 holdings

VF2 FUNDFund’s activitiesMovement in NAVPortfolio reviewInvestment portfolioTop 5 holdings

DIScrETIoNary porTFolIoS MaNagEMENT SErVIcE

6

9

12

QUANT - AN ACTIVE INVESTMENT MODEL 3

FUND PERFORMANCE IN THE QUARTER

QUANT - AN ACTIVE INVESTMENT MODEL

Proceeding the economic recession the recovery of the market will create new and innovative growth opportunities. At present Vietfund Management has founded a creative investment group which encompasses new concepts and tools to improve our funds investment performance.

This active tool known as a Quantitative model is used by renowned investment funds worldwide like JP Morgan Asset Management, Goldman Sachs Asset Management and Soros Fund Management and Bridgewater Associates etc. They have had impressive results and Vietfund’s investment team is experimenting with this tool and studying results from these companies to create a specific product that is appropriate for the Vietnam stock market

Quantitative Investing, A New Investing Method: Traditional Investment Analysis focuses in 2 areas: Fundamental Analysis, pioneered by Gram & Dodd in 1930 and Technical Analysis, pioneered by Edwards & Magee in 1940.

Quantitative Investing began in the early 1980’s and has grown steadily. Three things prompted the growth in the assets managed using quantitative investment techniques:

(1) Cheaper computers, starting in the 1980’s

(2) New academic theories about the mathematics of investing, developed in the 1960’s-70’s

(3) The excellent performance of most Quantitative funds including 4 main types: trend following, derivatives, Statistical

Arbitrage and High frequency / Algorithmic trading

The Benefits of Quantitative Investing

Quantitative investing allows investors to achieve investment returns that are not possible by purchasing and holding stocks and bonds using traditional investment management approaches. In technical investment language we say that Quant funds are Uncorrelated to a traditional “Buy and Hold” management style.

There are several different styles of quantitative investing depending on the objectives of the fund. Some funds aim for very steady, stable returns, regardless whether the stock market goes up or down. Other quant funds aim for high risk and high return. VFA is such a “high risk, high return” fund. We will target high returns, but those high returns will come at a risk. Investors will need to trust that our proven mathematical tools and methods will deliver good results and they need to know that if the fund does experience losses those losses are likely to be reversed quickly because our models will always seek out the investment opportunities that are the most likely to be successful.

QUANT - CREATIVE INVESTMENT GROUPVFM Active investment group

3


The Evolution of Quantitative Trading From 1980’s to Today

From 1930’s to 1980’s investment analysis did not change. Today, in 2009:

• Half of the assets managed by the largest hedge funds in the world are managed with quantitative investment

• Every major bank has a serious quantitative trading department

• Over Half the share orders on the major stock exchanges are generated by quantitative stock market investment models

• A thriving community of academics and practitioners meets regularly at top universities and on-line at websites like wilmott.com

In the Top 11 Hedge Funds, Over 50% AUM is Managed Using Quant Methods

Quantitative Investing began in the early 1980’s and has grown steadily. Three things prompted the growth in the assets managed using quantitative investment techniques:

(1) Cheaper computers, starting in the 1980’s

(2) New academic theories about the mathematics of investing, developed in the 1960’s-70’s

(3) The excel lent performance of most Quant i tat ive funds

Technical Analysis and Self Trading vs Investing with a Quantitative Fund Manager

The difference between self-trading using technical analysis and investing your money in a true quantitative fund is the same as the difference between going to the pharmacy to get some cold medicine and going to a world class hospital in Singapore to have a heart operation.

At VFM we urge investors to be proactive with their financial future, and that includes learning about technical analysis and fundamental analysis to they can make informed investment decisions.

Average of Top 11

EstimatedMinimum %

% Quant Driven

Bridgewater Associates 38.6 38.6 100%

JP Morgan Asset Management 32.0 23.0 70%

Paulson & Co. 29.0 0.0 0%

D.E. Shaw & Co. 28.6 22.9 80%

Brevan Howard Asset Management 26.8 2.7 10%

Man Investments 24.4 24.4 100%

Och-Ziff Capital Management Group 221 2.2 10%

Soros Fund Management 21 2.1 10%

Goldman Sachs Asset Management 20.6 10.3 50%

Farallon Capital Management 20 2.0 0%

Renaissance Technologies Corp. 20 20.0 100%

Assets Under Management (AUM), $B 284 146.2 51%

4


The Mathematical Tools of Quantitative Investing

In traditional investing using fundamental or technical analysis an individual person makes investment decisions based on an analysis of fundamental information, technical information, or both, depending on the method that the investment manager favors.

In quantitative trading, a computer model to make investment buy/sell decisions. Those decisions are made using highly sophisticated mathematical tools including:

• Machine Learning

• Information Theory

• Statistical Learning

• Optimal Control Theory

• Stochastic Differential Equations

Quantitative Investing at VFM

Quantitative investing has become an important activity in the financial centers of London, New York, Singapore, Hong Kong and Tokyo.

VFM already uses a state-of-the art investment process incorporating fundamental and technical analysis, and now with the initiation of the VFA fund, VFM is maintains its position as a market leader for innovation in Vietnam.

Active investment group

Micheal Kokalari, VFM’s new Senior Advisor is heading the innovative investment team. He has years of experience and has received CFA, MBA degree from Standford University in Business & Mathematics and completed specialized training courses in Harvard and London’s Economic University. Micheal has more than 15 years of experience in quantitative trading in banks such as JP Morgan Chase & Credit Suisse First Boston, Paribas & WestLB. Furthermore the other experts in the team, some who are CFA holders, have much experience in fund management and stock investment.

Creative investment group

Micheal Kokalari, VFM’s new Senior Advisor is heading the innovative investment team. He has years of experience and has received CFA, MBA degree from Standford University in Business & Mathematics and completed specialized training courses in Harvard and London’s Economic University. Micheal has more than 15 years of experience in quantitative trading in banks such as JP Morgan Chase & Credit Suisse First Boston, Paribas, Lehman Brothers & WestLB. Furthermore the other experts in the team, some who are CFA holders, have much experience in fund management and stock investment.

5

VF1 certificate’s trading activities have increased strongly in both its trading volume and value in the 3rd Quarter as both the Indexes also excel in their points. Total trading volume of VF1 certificates in August increased 1.5 times higher than in the 2nd Quarter, corresponding to VND 1,789 billions. The discount of the price and the net asset value has been improved dramatically in the 3rd Quarter as its rate was 28.33% in the last trading day of the 3rd Quarter.

NAV of VF1 as at 30/09/2009 reached VND2,818.1 billion or VND28,181 per fund unit. This recorded an increase of 8.5% compared to 8/2009. As a comparison to second quarter of 2009, NAV of VF1 in QIII/2009 experienced a good growth of 33.6%, higher than those of VN-Index and HNX-Index, as a result of strong recovery of Vietnam stock market and more importantly of rational portfolio restructuring of VF1.

VF1 FUND OPERATION IN 3RD QUARTER, 2009

MOVEMENT IN NAV

VF1 INVESTMENT FUND

100

0

200

300

400

500

600

05/04

07/05

04/06

01/07

09/07

06/08

01/09

09/09

NAV VF1 pErFOrMANCE VS. INDEx28/02/08 = 100

30/09/2009 Performance (%)

Fund size (VND bn)

NAV(VND

bn)

Unit NAV (VND) 1-month 3-month 6-month 9-month YTD

Since inception

(20/05/2004)

VF1 1,000 2,818.1 28,181 8,5 33,6 17,2 66,1 66,1 181,8

VN-Index 580,9 6,3 29,6 107,0 84,1 84,1 122,1

HASTC-Index 184,3 7,0 23,7 87,3 75,3 75,3 84,3

6

In QIII/2009, most listed stocks in the portfolio had their prices increased so that their performance in the portfolio attained a growth of 59.6%, higher than those of VN-Index and HNX-Index. Investment in unlisted stock also achieved a high growth of 22.9% in the same period. Consequently, despite the high proportion in NAV of bond and cash & other assets (27.4%), VF1 still reached higher growth than that of VN-Index.

Top five industry in the portfolio (61.2% of NAV) all had a higher growth than VN-Index and HNX-Index in QIII, espe-cially Infrastructure – Real estate being the most growing in-dustry (87.6%) with the highest NAV share (20.6% of NAV).

VF1 INVESTMENT FUND

Total investment in QIII/2009 was worth VND547.5 billion mostly in Infrastructure – Real estate (VND126.5 billion), banks (VND86.0 billion), Materials - Resources (VND63.5 billion), and Retailing (VND51.4 billion). The remaining disbursed industries were Food - Beverage, Energy, and Transportation. Investment for bond was VND99.7 billion for portfolio balancing.

Divestment in QIII/2009 was VND530.7 billion, mainly done in 9/2009. Divestment in 9/2009 alone accounted for 93.9% of total divestment in the quarter. Divestment has been made mostly in Infrastructure – Real estate (VND244.3 billion or 50% of total divestment).

Gain/Loss (%)% NAV

QIII YTD

NAV growth(%) 33.6 66.1 100

Total investment 37.8 81.8 82.2

By asset classes

HOSE 68.3 118.7 40.1

HNX 26.7 144.0 10.4

Unlisted 22.9 67.8 22.2

Bonds (8.2) (2.4) 9.5

Top 5 industriesBanks

Real estate 87.6 186.9 20.6

Banks 14.8 134.3 16.3

Resources & Material 33.5 57.0 11.9

Food - Beverage 65.6 73.0 9.1

Retailing 23.0 74.2 3.4

NAV performance Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year-to-date

(YTD)YTD

annualized

2009 (1.4) (7.5) 4.5 8.6 10.7 8.4 7.7 14.3 8.5 66.1 96.7

2008 (6.0) (15.0) (15.7) (9.0) (20.0) (4.2) 6.7 14.2 (9.7) (14.0) (1.0) 0.6 (55.8) (55.8)

2007 25.0 47.6 33.0 19.9 24.9 0.1 (3.5)* (2.1) 5.8 8.8 (4.2) (2.1) 46.1* 46.1*

2006 6.0 14.7 10.3 33.5 4.0 3.2 (8.4) 1.3 4.7 (4.4)* 15.2 31.0 175.1* 175.1*

2005 0.04 2.4 1.1 (2.4) 0.2 0.5 0.2 3.5 5.6 5.8 4.7 1.2 25.2 25.2

2004 1.0 (0.6) (0.2) 0.3 0.6 (0.2) 0.6 1.6 3.2

(*): based on weighted average chartered capital

PORTFOLIO REVIEW

7

11.7

3.9

20.114.9

18.9

20.6

9.1

1.3

11.9

1.9

2.9

1.7

3.4

0.3

0.1

0.5

9.5

2.9

17.4

17.1

7.6

1.6

11.4

2.0

2.2

1.2

2.5

1.3

0.1

0.0

Asset allocation (%)

Bonds

Partial Investment

Cash & other assets

Listed shares

Unlisted shares

VF1 INVESTMENT FUND

30/06/2009 30/09/2009

Investment in QIII/2009 in Infrastructure – Real estate, together with the increase in market price, NAV weight of this industry grew from 17.1% up to 20.6% of NAV. NAV share of Food – Beverage also had slight increase from 7.6% to 9.1% as a direct result of increase in market price.

Investment in other industries remained unchanged.

INVESTMENT BY INDUSTRIES (%) 30/06/2009

30/09/2009

TOP 5 HOLDINGSStock Stock market % NAV

SJS HOSE 7,1

VNM HOSE 6,2

EIB OTC 6,1

ACB HOSE 5,9

NTL HOSE 5,3

In QIII/20009, the asset allocation continued to change to the direction of increasing investment in listed stock (up to 50.5% of NAV) and decreasing other assets. This is driven by the strong recovery of stock market, coupled with active investment in undervalued stocks, resulting in good performance for the quarter. After reducing to 4.4% as at 31/8/2009, divestment in 9/2009 increased to 14.9%.

INVESTMENT PORTFOLIO

Đvt: % NAV

Trái phiếuỨng trước cho các khoản đầu tưTiền & phải thu khácCổ phiếu niêm yếtCổ phiếu chưa niêm yết

31/03/2009 31/06/2009

22.2

14.9

50.5

2.9

9.511.7

3.9

40.2

20.1

24.1

Banks

Real estate

Food, Beverage & Tobacco

Energy

Materials

Transportation

Pharmaceuticals

Capital Goods

Retail

Utilities

Technology Hardware & Equipment

Auto

Bonds

Partial Investment

Cash & other assets

8

In the 3rd quarter of 2009, trading activities in both Ho Chi Minh and Ha Noi’s floors consistently increases its Index; however, VF4 shows a little bit a down trend in both trading value and volume. Total trading volume of VF4 certificates in the 3rd quater has decreased its volume by half, corresponding to VND 375,296 billions. The net asset value per unit in the last trading day of 3rd Quarter was VND 10.500 dong, went up almost to 23.5% compare to last quarter, corresponding to around 42.32% and 33.74% growth of VN-Index and HNX-Index.

VF4 FUND OPERATION IN 3RD QUARTER, 2009

MOVEMENT IN NAV

VF4 INVESTMENT FUND

30/09/2009 Performance (%)

Fund size (VND bn)

NAV(VND

bn)

Unit NAV (VND) 1-month 3-month 6-month 9-month YTD

Since inception

(28/02/2008)

VF4 806.5 1.191.2 14.771 6.1 33.2 78.1 73.2 73.2 47.7

VN-Index 580.9 6.3 29.6 107.0 84.1 84.1 (14.3)

HNX-Index 184.3 7.0 23.7 87.3 75.3 75.3 (20.7)

NAVperformance Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year-to date

(YTD)YTD

annualized

2008 (2.0) (0.9) (5.7) 0.4 6.3 11.5 (8.5) (12.7) (3.7) 1.7 (17.4) (17.4)

2009 (1.3) (9.0) 8.3 11.2 13.0 6.5 7.6 16.6 6.1 73.2 108.0

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Gain/Loss (%)% NAV

QIII YTD

NAV performance 33.2 73.2 100.0

Total investment performance 29.5 48.0 91.6

By listing status Listed stocks 30.0 49.3 87.3

Unlisted stocks 19.9 20.7 4.3

Top 5 industries

Banks – Diversified Financials 1.4 42.7 19.2

Materials - Resources 21.4 37.7 18.7

Infrastructure – Real estate 78.3 100.2 16.0

Food - Beverage 73.9 78.1 14.0

Retailing 18.4 46.1 7.3

VF4 INVESTMENT FUND

Total investments of VF4 represented for 91.6% NAV as at 30/09/2009 and possessed the third quarter gain of 29.5%, mostly equivalent to the growth of VN-Index in the above-mentioned period.

Investment in listed stocks, which accounted for 87.3% NAV, recorded a gain of 30.0%, comparable to the growth of the market.

In QIII/2009, Vietnam stock market continued to witness a heading-north-trend. As a result, VF4 experienced the highest unit NAV since inception of VND14,771. This posed a growth of 1.1 times and 1.4 times of the growth of VN-Index and Hastc-Index in the third quarter of 2009. The year-to-date growth was, too, attained at the high rate of 73.2%, equivalent to over 90% of the growth of VN-Index and Hastc-Index in the same period.

NAV pErFOrMANCE28/02/08 = 100

PORTFOLIO REVIEW

In top five industries, Infrastructure – Real estate and Food - Beverage achieved the highest gains, over 70% in QIII/2009. Despite the largest share in NAV, Banks – Diversified Financials only grew 1.4% since market prices of holding stocks in this industry reduced in QIII/09.

30

50

70

90

110

130

02/08

03/08

04/08

05/08

06/08

07/08

08/08

09/08

10/08

11/08

12/08

01/09

02/09

03/09

04/09

05/09

06/09

07/09

08/09

09/09

NAV VN-INDEX HNX-INDEX

10

14.6

19.2

18.7

16.0

14.0

7.3

4.0

5.3

3.1

2.9

1.1

8.4

16.8

11.5

9.0

8.3

3.7

8.8

2.6

0.0

1.9

22.7

INVESTMENT PORTFOLIO In QIII/2009, VF4 invested in two new listed companies and one new unlisted company, with total investment of VND91.7 billion, made up of approximately 30% of total investment of the quarter. Correspondingly, NAV proportion of invest-ment in the portfolio increased 20%, from 77.3% NAV as at 30/06/2009 up to 91.6% as at 30/09/2009. As such, NAV share of cash & other assets reduced from 22.7% NAV as second quarter end down to 8.4% NAV as at third quarter end.

Representing the largest amount of investment in QIII/2009 (over 65%), Infrastructure – Real estate, Food – Beverage, and Banks – Diversified Financials reached the highest increase in NAV weight. These are growth and good asset-based stocks, which create a room for growth in opti-mistic scenario, yet still ensure the defensive nature for the portfolio in pessimistic scenario. Energy industry also had its NAV share increase much, due to the increase in market price. In QIII/09, VF4 made new investment in Auto industry in order to utilize the trading opportunities.

Divestment in QIII/09 was VND229.5 billion, mainly for trading strategy. This yielded average ROI of 35%.

The investment portfolio of VF4 as at 30/09/2009 encom-passed of 21 investment in 10 industries, in which top three was as follows (54.0% NAV and 58.9% of total investment):

+ Banks – Diversified Financials (19.2%)

+ Materials - Resources (18.7%)

+ Infrastructure – Real estate (16.0%)

INVESTMENT BY INDUSTrIES (%) 30/06/2009

30/09/2009

ASSET ALLOCATION (%)30/06/2009

30/09/2009

Banks

Materials & Resources

Infrastructure & Real estate

Food & Beverage

Retail

Utilities

Pharmaceuticals & Healthcare

Energy

Auto

Transportation

Cash & Other assets

74.687.3

2.7

22.7

4.3

8.4

Listed stocks

Unlisted stocks

Cash & other assets

TOP 5 HOLDINGS

Stock Stock exchange % NAV

VNM HOSE 11.7

SJS HOSE 8.3

PVF HOSE 7.8

HAG HOSE 7.7

ACB HNX 7.6

VF4 INVESTMENT FUND

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INDEX INVESTMENT STRATEGY

ACTIVE INVESTMENT STRATEGY

DISCRETIONARY PORTFOLIOSMANAGEMENT SERVICE

A pioneer in Vietnam’s burgeoning financial market, VFM has ex-pertise and experience in a range of asset management servic-es and offers professional solutions to maximize your benefits.

We have a broad range of domestic and international clients who take advantage of our core skills and entrust their as-sets to our management. Discretion, integrity, innovation and placing client interests first are at the core of our services.

Our discretionary portfolios management service is the cus-tomized gateway to Vietnam’s most prestigious investments. With this service, we will work with you to define the invest-

ment strategy that best suit your situation and requirements. In which we have to get a clear picture of your appetite for risk, your performance targets and investment horizon, as well as other related preferences. Our selection of flexible mandates allows us to offer you the strategy that is best suited to your specific requirements.

By entrusting the management of your assets to us, you can be sure your portfolio will be managed professionally – leav-ing you more time for yourself.

portfolio shall consist attractive stocks, bonds, funds and we use our special technique to time when to move into or out of markets or market sectors. Our active management strategy encompasses various methods, and includes fundamental analysis, technical analysis, and macroeconomic analysis, all having in common an attempt to determine profitable fu-ture investment trends.

This strategy is designed for investor who seeks return bet-ter than the market’s average or a predefined benchmark. We achieve this return through the use of multi-investment strategies in different economic period. In pursuing investor’s objective, our active managers search out information they believe to be valuable, and often develop complex or propri-etary selection and trading systems. At any point in time, the

This strategy is designed for investor who seeks long term returns and low cost investment portfolio. To meet the in-vestor objective, our investment expert invest in broad sec-tors of the market, called asset classes or indexes, and accept the average returns of that Index or asset classes. In addition, we maitain a small portion of unindexed asset that has valuation under the real value in order to take the market’s opportunities and optimize return. The strategy

makes no attempt to distinguish attractive from unattract-ive securities, or forecast securities prices, or time markets and market sectors. Instead, the portfolio asset allocation is based upon empirical research delineating probable asset class risks and returns, diversify widely within and across asset classes, and maintain allocations long-term through periodic rebalancing of asset classes.

“We are committed to providing the investmentsolution to best suit our clients’ needs”

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2006 2007 2008 2009ERevenue (VND bn) 835.9 951.9 1.131.8 1.376.8

Revenue growth (%) 28.2 13.9 18.9 21.7

Net profit (VND bn) 62.7 83.5 70.2 178.2

Profit growth (%) -8.5 33.1 -16.0 154.0

Net margin (%) 7.6 9.2 6.4 12.9

P/E (x) 17.1 17.0 21.7 8.4

PEG (x) neg 27.7 neg 0.1

P/B (x) 2.7 2.5 2.6 2.3

ROE (%) 12.7 15.0 11.8 29.1

ROA (%) 6.9 8.8 7.6 18.5

Debts/Equity (x) 0.8 0.6 0.5 0.6

Closing price on Sep 30,2009 Chartered capital Market capitalization

VND53,000 per share VND300 billion VND1,590 billion

REVENUE & NET PROFIT (VND bn)

OUTLOOK Lasuco is the market leader in Northern Vietnam, which is also its main market and accounts for 65% of total sales. The company’s location in Thanh Hoa province is a big advantage in term of distribution costs because most sugar manufacturers are located in Southern Vietnam. Lasuco also has low production cost due to its fully depreciated fixed assets, and more importantly, a stable raw sugar cane plant, which makes a significant difference to other manufacturers. The company’s total sugar cane planting area is 15 – 16 thousand hectares, which is able to supply 1.1 – 1.2 million tons of raw sugar cane per year.

The company has a potentially excellent short-term performance due to the shortage in sugar supply and the rising price all over the world.

Moreover, the reversal of provision made for equity investment in 2008 will contribute considerably to the bottom line of the company in 2009.

In the long run, domestic sugar manufacturing industry is not very competitive due to inefficiency and high production cost. In addition, local sugar manufacturers have to face with increasing competition from imported sugars. Therefore, in order to maintain high growth, Lasuco has to continuously improve its operation efficiency and corporate governance.

OPERATION HIGHLIGHTSLam Son Sugar Join Stock Company (Lasuco) is the biggest sugar manufacturer in Vietnam even though it is only the third biggest in term of capacity with 7,000 tons of sugar cane consumption per day. Lasuco was founded in 1980 and transformed into a joint-stock company in 2000. The company is currently operating with full capacity, and able to produce 100-120 thousand tons of sugar and 20-25 million litres of alcohol.

Lasuco achieved a good performance in 2008 with a record high revenue. However, due to the provisions made for equity investment of VND 80 billion, its bottom line was seriously affected.

Total sales output for FY2008 was 103,000 tons of sugar and 20 million litres of alcohol. Total revenue was VND 1,131.8 billion, net profit stood at VND 70.2 billion, a decrease of 16% YoY.

The first half of 2009 saw a very good operating result with sugar sales output reached 55 thousand tons. Net profit for 1H2009 was VND 76.1 billion, equivalent to 95.1% of FY2009 plan, on revenue of VND 628.1 billion. Moreover, there was a reversal of provision of 40 VND billion to be recorded.

The company’s targets for 2009: total sales output of 90 - 95 thousand tons of sugar and 15 million litres of alcohol, total revenue of VND 1,000 billion, net profit of VND 90 billion, and dividend payout of 13 – 15%.

The company does not have any plan to expand its production capacity yet because it could not expand the sugar cane planting area accordingly.

HIGHLIGHTED INVESTMENT

LSSLAM SON SUGAR JOINT STOCK CORPORATION

ROE & ROA (%)

FINANCIAL HIGHLIGHTS 2006 – 2009E

BASIC MARKET INFORMATION1,500

1,000

500

0

2006 2007 2008 2009E

Revenue Net profit

30

25

20

15

10

5

-2006 2007 2008 2009E

ROE ROA

13

REVENUE & NET PROFIT (VND bn)

2006 2007 2008 2009ERevenue (VND bn) 1,268 1,469 1,709 2,087

Revenue growth (%) 16.00 16.00 22.00

Net profit (VND bn) 13 22 131 167

Profit growth (%) 70.43 498.79 27.57

Net margin (%) 1.01 1.49 7.68 8.02

P/E (x) 71.88 12.00 9.41

PEG (x) 102.06 2.41 34.10

P/B (x) 9.04 9.06 5.84 3.32

ROE (%) 11.06 12.60 59.20 52.18

ROA (%) 1.65 2.78 14.48 19.37

Debts/Equity (x) 5.70 3.54 2.46 1.53

Closing price on Sep 30,2009 Chartered capital Market capitalization

VND105,000 per share VND150 billion VND1,575 billion

FINANCIAL HIGHLIGHTS 2006 – 2009E

BASIC MARKET INFORMATION

OPERATION HIGHLIGHTSVietnam-Italy Steel JSC (VIS) has the 8th highest market share in the construction steel market in Vietnam. The company possesses a modern, integrated Italian technology production line.

Being privatized in 2004 with an initial chartered capital of VND 30 billion, Vietnam-Italy Steel JSC then listed their shares on HOSE in 2006 with a chartered capital of VND 100 billion, which then was increased to VND 150 billion in 2007.

Inspite of the world economic depression in the second half of 2008, Vietnam Italy Steel Jsc still maintained remarkable operating results. Total output for FY2008 was around 161,000 tons of construction steel, reaching 64.4% of the designed capacity. Total revenue in 2008 was VND 1,016 billion, its net profit was VND 131 billion, and earnings per share (EPS) reached around VND 8,700.

The first half of 2009 saw a very good operating result when production volume of construction steel was 108,000 tons, equal to 63% of FY2009 plan. Net profit for 1H2009 was VND 113 billion, which was 5 times higher than their FY2009 plan.

With the Government’s stimulus package and the world economic recovery, the outlook for operating results in 2H2009 remains positive.

OUTLOOK The domestic steel industry has a good long-term prospect thanks to a strong de-mand driven by the needs for investment in infrastructure and by the urbanization in Vietnam.

The Company has invested in a billet making factory (Song Da steel factory) in Hai Phong from 2007. The factory is planned to come into operation in the 4th quarter this year. Equipped with Consteel Technology with a capacity of 400,000 tons of billet per year, it is said that Song Da Steel factory is the biggest and most advanced billet making factory in Northern Vietnam.

The new factory will help the company gain better control over input materials, in-crease operating capacity of the current steel mill, reduce cost and strengthen its competitiveness in the domestic steel market.

HIGHLIGHTED INVESTMENT

VISVIETNAM- ITALY STEEL

JOINT-STOCK COMPANY

ROE & ROA (%)

2,000

1,500

1,000

500

0

2006 2007 2008 2009E

Revenue Net profit

60

50

40

30

20

10

-2006 2007 2008 2009E

ROE ROA

14

INVESTOR RELATIONS

Dr Tran Du Lich Dr John Hing Vong

INVESTOR RELATION ACTIVITIES IN QIII/2009

VietFund Management (VFM) organized the Seminar “Post crisis chances to Vietnamese enterprises” at Sofitel saigon on 19 August 2009.

The seminar witnessed the Corporate Finance (CF) Department of VFM, who works as a commitment to VFM’s partners and investees as well as help VFM to increase the assets of their holders. CF will sign and proceed consultant contracts with enter-prises, hold seminars for the management team to intensify leadership capacity to make most use of business opportunities. CF team consists of senior advisors from VFM and collaborators from Dragon Capital and Sacombank.

At the seminar, leaders from listed company discussed with Dr Tran Du Lich, former director of the HCM City Institute for Eco-nomic Research and Dr John Vong, former Expert for IFC, Worldbank about the current economy and its prospects. Lich, also a member of the national Assembly’s Economics Committee, said the economy’s weaknesses had been exposed, and restruc-turing was critically needed and that local compnies must take advantage of the Government’s stimulus packages to reform production and train human resources.

He also said that unexpected prince hikes of raw materials in the world market as they were in 2007 would not reoccur, and the country’s economy would be stable for the remaining months of the year.

Following this seminar, the seminar “Catch the post – crisis opportunities” will be the next in the series of VFM’s customer care actitives. In the seminar, VFM will share with investors VF1, VF4 funds’ performance and their experience in successful invest-ment model in the world.

Time: Thursday, 22 October 2009 | 14:00 - 16:00

Venue: Rex Hotel, 141 Nguyen Hue, District 1, Hochiminh City

Agenda: • Update on VF1 & VF4 fund’s performance

• Introduction to Quantitative Model

• Talk with experts: Mr. Michael Kokalari, Senior Advisor – VietFund Management

15

BOARD OF REPRESENTATIVES (BOR) ACTIVITIES IN QUARTER III/2009 In QIII/2009, VF1 BOR held its periodical meeting with the following specific agenda items:

29th meeting – 16th July 2009

Number of participants: 06 and Representative of Vietcombank Custodian bank.

Meeting agenda items:

• Report on VF1’s operating results in Quarter II/2009

• VF1 action plan in QIII/2009

• Report on VF1 Fund Representative Board’s member structure

• Report of VF1 Investor Relation’s program

• Select VF1 Auditing company for the next year and up-dating procedure of stock transfer for the Board of Rep-resentatives.

In addition, VF2 BOR also held meeting with the following specific items:

10th meeting – 16th July 2009

Number of participants: 07 and Representative of HSBC Custodian bank.




• Report on VF2 Fund Representative Board’ s structure of member

• Report on VF2 Fund Investment Committee’ structure of member and its Regulation

• Select VF2 Auditing company for the next year

On the same day, VF4 BOR held meeting with the following specific items:

06th meeting – 16th July 2009.

Number of participants: 06 and Representative of HSBC Custodian bank.




• Report of VF4 Investor Relation’s program

• Selecting VF4 Auditing company for the next year and updating procedure of stock transfer for the Board of Representatives.

On the other hand, VFM maintains contacts with investors by sending them reports on funds’ performance.

+ By email and post

+ Monthly updates and Newsletter are posted at information desks in securities companies

+ All the reports are updated on VFM’s

website www.vinafund.com, as well as websites of securities companies.

In the recent quarter, we received updates of your contact in-formation and feedback on our reports. We always welcome feedback from investors to intensify customer care activities at the following address.

Investor relation – Business Development department VietFund Management (VFM)10th floor, Central Plaza building, 17 Le Duan, District 1, HCMC

Tel: +84-8-3825 1488 Hotline: +84-8-3825 1480

Fax: +84-8-3825 1489

Email: [email protected]

INVESTOR RELATIONS (IR) ACTIVITIES

16

3 July 2009, Dragon Capital sponsored and participated in the Investors Relation Seminar as one of the key speakers. The event, jointly organized by Eurocham, Vietnam Europe Business Forum (VEUBF) and VCCI, analyzed the requirements and standards of investors relation activities, and its important role in building and maintaining investors’ confidence.

6 July 2009, Dragon Capital, HCMC Stock Exchange and Trade & Development Department of the British Consulate co- hosted a round-table discussion held at the Rex Hotel in the occasion of the visit of London Lord of Mayer, Ian Luder, to HCMC. Invited to the event were authority bodies of HCMC and international banks and law firms. At the discussion, the delegation from London shared its experience in developing London as the financial centre of the United Kingdom, which added values to the study of the HCMC People Committee in planning and developing HCMC as the financial centre of Vietnam. Other areas addressed are legal frame work, involvement of provincial authority, labor supply…

Dragon Capital and CLSA (Credit Lyonnais Securities Asia), a leading financial services broker in Asia jointly held two 2 full day seminars, before and after the CLSA Hongkong Investors Forum, on 17& 18 Sept and 28 & 29 Sept. The seminars, named Vietnam Access, attracted around 30 international institutional investors, Legatum, Invesco, Johim, Wellington, First Bank,… to name a few, split even over the two events. At the seminar, Dragon Capital and invited speakers from blue chip companies presented the Macro Economy, Equity Market, Fixed Income, Property, The Challenges and Opportunities as well as micro-economy, via company presentations.

ACTIVITIES FROM VFMS’ PARTNERS

Sacombank-SBL supports SMEs

On 08 August 2009, Sacombank Leasing Company (Sacombank-SBL) jointly with Business Development Solutions Corporation (BDSC) held a seminar, “Corporate restructure - Capital Restructure at SMEs”. The seminar aims at helping enterprises, improve their restructure capacity to capture the opportunity of replacing and equipping the advanced machines, so that they can quickly recover and develop in time of post-crisis. At the seminar, enterprises learnt the benefits of leasing services of Sacombank-SBL. The seminar attracted more than 60 enterprises that are members of Vietnam Printing Association as well as Sacombank customers.

“Sacombank-SBS Investors” and “Forecasting the VN-Index” Competitions

The two highly popular competitions namely “Sacombank-SBS Investors” and “To predict the VN-Index” held by Sacombank Securities Company (Sacombank-SBS) on STrade system, from 15 July to 18 December 2008, has come to the second phase “Speeding”

The first phase from 15 July to 14 August 2009, attracted 9,518 new accounts for the “Sacombank-SBS Investors” and 3,000 new accounts to join in the “To predict the VN-Index”.

Through the challenging competitions, Sacombank-SBS wishes to introduce Online Securities Trading, to investors.

Sacombank-SBS introduces Investment Banking Services

On 01 September 2009, Sacombank Securities Company (Sacombamk-SBS) introduced “Sacombank-SBS Investment Banking Business” at Legend Hotel with the attendance of representatives from securities authorities, financial institutions and the press to witness the event. With this event, Sacombank-SBS is the first securities company in Vietnam to start Investment Banking and at the same time playing a significant role as “an investment gateway” for the both domestic and regional capital markets.

Sacomreal receives 5 prizes at Vietbuild 2009

Saigon Thuong Tin Real Estate Joint Stock Company (Sacomreal) has been awarded 5 prizes at the Ceremony of Golden Cups in the Construction Sector - Vietbuild 2009. The prizes include the Construction Golden Brand Cup, Excellent Real Estate Trading Floor, Excellent Real Estate Brokerage, Certificate of Sponsor. The Ceremony aims at acknowledging well-known brandnames in the Vietnam construction sector. It is the first time that the Excellent Real Estate Trading Floor prize is awarded. The winning criteria includes the floor performance (measured by trading contracts, successful transactions, fee based income) and legal compliance (tax, labor, insurance) and lastly a reputation rating.

DRAGONCAPITAL

17

o Trade deficit is on the rise and will have negative im-pact on the balance of payment’s and the VND ex-change rate.

o Expansionary monetary policy, rapid credit growth and high level of budget deficit will create the risk of returning inflation.

• To face the challenges, the government should:o Reduce spending for stimulus measures.

o Keep the exchange rate predictable and gradually depreciate the VND at a slow pace.

o Start preventive tightening measures through main-taining public confidence and avoid any possible shock for the economy.

o Monetary expansion policy and enormous resources are allocated to stimulate economies, ultimately at some point could lead to the risk of inflation and as-set bubble;

o In the long run, the US might need to restructure there growth model so there is less dependence on borrowing and consumption that could lead to trade deficit; China should rely more on its domestic market for growth.

• Data released by GSO showed that GDP growth has bounced back strongly from its lowest level of 3.1% in QI/09 (compare to QI/08) to 4.5% in QII and 5.76% in QIII thanks to domestic consumption and government stimulus package. GDP for the year is forecasted above 5%.

• Economic recovering process will face a number of chal-lenges such as:

o Demand from key export markets is and will still be weak. This combined with low level of pricing has had a negative impact on the export revenue.

o High level of budget deficit 6.5-6.9% by the govern-ment is estimated to increase to 10.1% by ADB. Gov-ernment debt therefore is on the rise creating pres-sure on the budget for the years to come.

• The key trading partners of Vietnam, which are up the major economies throughout the world, have show indication of improvement from economic crisis. These economies like China and other parts of Asia are showing impressive recov-ery. However there is a slower pace of recovery in the US and Europe .The economic recession has created many different challenges:

o Intensified trade protection throughout many countries culminating to a slower recovery of international trade;

VIETNAM ECONOMY BOUNCED BACK STRONGLY

GLOBAL ECONOMY ON THE RECOVERING PROCESS


18

In this quarterly report, we will provide updates on the Vietnam economic performance, the challenges that the country is facing as well as policy options that the government is likely to take and their potential impacts. The appendix of the report provides the updates and recovery process from major economies in the world, which are also Vietnam main trading partners.

As we have noted on the previous quarter report, there are a number of positive signals suggesting the Vietnam Economy is bounc-ing back strongly from the crisis. This view has been supported by news and data available in the last three months in the country. Public confidence is returning, which is an encouraging sign for sustainable recovery for the time to come.

The Vietnam economy is weathering well through the global economic and financial crisis partly because of the unprec-edented stimulus package provided by the government. The table on the left shows key economic performance indicators as at the end of September 2009.

GDP growth has been solid as it picked up from its lowest level of 3.1% in QI/09 compared to QI/08, to 4.5% in Q4 and 5.76% in QIII so that the growth in the first 9 months of 2009 reached a respectable figure of 4.56%. V shape recovering as many people have been hoping for is on the way.

During the difficult periods, the Vietnam economy has been supported by much needed domestic demand. In nine

months, retail sale has increased by 18.6% compared to the same period last year of around 12% after eliminating infla-tion. When consumption is the biggest component of GDP, consumer confidence could make the difference for a faster recovering process. Industrial output rose significantly at 13.8 % compared to September last year or 6.5% within the nine month period.

As positive data become available, major research institu-tions such as BMI, EIU, ANZ, Standard Chartered and ADB have revised upward GDP growth forecast for 2009 and 2010. Positive data shows that Asia is recovering stronger then any other part of the world and Vietnam is amongst the spotlights in Asia.


Source: GSO Source: GSO

INDUSTrIAL prODUCTION GrOWTH (YOY) GDp GrOWTH (YOY)

%

22

18

14

10

6

2

-2

-6-4.4

14.6

6.5

T NG TR NG S N XU T CÔNG NGHI P (YOY)

01/08 03/08 05/08 07/08 10/08 12/08 02/09 04/09 06/09 08/09 09/09

%

10

8

6

4

2

T NG TR NG KINH T (YoY)

03/01 01/02 11/02 09/03 07/04 05/05 03/06 01/07 11/07 09/08 07/09

Q1/2009: 3.2%

VIETNAM ECONOMY

1. Economy bounced back strongly thanks to the domestic demand and the government stimulus package.

19

Economic growth – Confidence and stimulus package?

Gross National Product (GDP) is popular indicator to measure the economic performance of a country. Using demand-based approach:

GDP = Domestic consumption + Investment + (Export – Import) + Government spending.

During the crisis, public confidence would usually be collapsed therefore consumers would spend less, companies in-vest less, and foreign countries where the export products are going to also buy by less. In this context, governments usually increase spending through stimulus packages in order to improve consumption, to maintain employment and to stimulate domestic demand so that GDP reduction is compensated and public confidence would be maintained.The negative side of stimulus packages might normally be : (1) Increase budget deficit, (2) Increase import demand rather then domestic consumption, (3) People who benefit from government spending might or might not be those who need it the most, thus reducing the effectiveness of the stimulus packages and distorting the market. In the long run the economy will recover only if the causes leading to crisis have been eliminated and the confidence on the economic outlook has been restored. Only then, consumers would spend, companies would invest to meet the demand from consumers and the economic growth would be sustainable. Confidence in overseas markets also have positive correlation with export demands as well as foreign direct and direct investment.

The Vietnam economy has been facing enormous challeng-es since the end of 2008 and the beginning of 2009 due to the global economic crisis, which were:

• Demand from key export markets have collapsed;

• Foreign capital inflow, which comes from both direct and indirect investments has been drained due to the crisis in investor’s home countries;

• Vietnam economy has suffered a home-made financial crisis due to high inflation and financial mis-management in 2007/2008. To control the inflation, fiscal and monetary policies have been tightened, which led to higher cost of capital for local enterprises. As a result a number of enterprises were in danger of bankruptcies and/or insol-vency.

To stimulate economic growth, as soon as inflation has been put under control, the government has implemented a series of measures with the price tag of over 140 trillion VND to stimulate the economy. The fiscal and monetary interven-tions were as follows:

• Reduced the policy interest rate from as high as 14% to 7% within a few months to pump the liquidity to the mar-ket and reduce the cost of capital.

• Subsided 4% interest rate to finance short-term work-ing capital for enterprises with the total subsidy value planned at 17000 billion VNĐ (around 1 billion USD).

• Widen the trading room for the exchange rate of VND/USD from 3% to 5%.

• Defer corporate and personal income tax for both indi-vidual and enterprises.

• Reduce VAT for number of products for domestic con-sumption.

• Allocate the 2010 budget for infrastructure projects.

The consensus is that implemented measures were suc-cessful in slowing down the recession and restoring eco-nomic activities. However, they were also contributing many problems as presented in the next section.

2. Economic crisis and government stimulus measures

GOVErNMENT DEBT TO GDp (VN)

Source: GSO and NA economic committee

%

50

40

30

20

10

-

2004 2005 2006 2007 2008 2009 2010F

N CHÍNH PH /GDP C A VI T NAM

31.3 36.0 36.6 37.2 36.5

40.0 44.0


20

3.3 Import is picking up, trade deficit on the rise

The first obvious implication of the stimulus package is the high level of budget deficit, which could be as high as 10.1% according to estimate’s by the Asian Development Bank (ADB) in its recent report, or 6.5% - 6.9% as estimated by the government which does not include some off-budget items.

Financing budget deficit led to growing government debt, which was 36.5% of GDP in 2008, but is forecasted to grow up to 40% of GDP in 2009 and to 44% of GDP in 2010. At this time, the government is in discussion over the need for another stimulus package, which in our opinion should not be large compared to the first package. This might create undue risk for the budget deficit and government debt. On the other hand, it might be risky to eliminate all the stimulus measures at this point as the economic recovery is not yet sustainable and the public confidence has not been fully restored.

Export in the first nine months of the year has decreased 14.3% in value in comparison with the same period last year, primarily due to the decrease in price of major export products as well as week demand in key markets. Interest-ingly, although export quantity of several key products has increased, their value has declined. Exemplified through the quantity of exported rice increased by 33%, however its val-ue decreased by 8%, the quantity of exported café increased by 15.7% but value decreased 18.8%. The figures are re-spectively a 10.3% increase and 40% decline for rubber. We believe that export will improve only slightly until mid 2010 before picking up on the second half of 2010 when the global demand & commodities price recover.

3. Challenges

3.1 Increase budget deficit and government debt

3.2 Export in nine months decreased in value but not quantity

Source: GSO

01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09

Bil USD

8.0

6.0

4.0

2.0

0.0

-2.0

-4.0

Bil USD

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

Export Import Trade Balance

-1.5

CÁN CÂN TH NG M I

6.8

12.0

20.3

60.3

12.6

3.3

4.1

8.0

11.5

7.2

2005

2006

2007

2008

9M/ 2009

V N U T TR C TI P N C NGOÀI (T USD)

Dibursed capital Registered capital

TrADE BALANCE (VN)

BUDGET DEFICIT (VN)

Source: MPI

FOrEIGN DIrECT INVESTMENT (BIL USD)

Source: GSO, ADB

The import value during the first nine months of 2009 has de-creased 25.2% compared to this period last year. However, import has been on the rise in QII and QIII. Trade deficit was at 1.52 billion USD in September or 6.43 billion USD for that nine month period.

With the current pace of export and import, trade deficit is estimated at 10.5 billion USD for 2009, which might create significant pressure on balance of payments as well as ex-change rate VND/USD. Trade deficits are normally covered by (1) Foreign investment including both direct (FDI) and in-direct investment (FII), (2) Foreign remittance (3) ODA fund-ing and government debt.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bil USD

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

4.3

3.5

2.3 2.2

-0.2

1.1

1.8

5.4

4.7

6.9

THÂM H T NGÂN SÁCH


21

1. FDI registered until 30/9 is 12.6 bil USD – a significant decrease compared to 57.1 bil USD for the same pe-riod last year, however disbursements for the last nine months was 7.2 bil USD – a slight reduction of 11.1% compared to 2008. This slight reduction during the cri-sis shows that the confidence of long-term investors on the Vietnam outlook remained untouched. It should be noted that part of the FDI disbursement could come from local funding & credit especially in the case of real estate projects and FDI companies that increase their investment in Vietnam. FII this year is expected to be insignificant and will possibly be improved only from 2010 onward.

2. Due to the crisis in the developed world, foreign remit-tance is expected to decrease this year. According to an official from SBV, “Foreign remittance is expected at 5.8 bil to 6 bil USD, a sizable figure during the global recession.”

3. ODA disbursements within nine months reached 1.715 billion USD or 90% of the yearly target. This year ODA commitment for Vietnam is well over six billion USD in-cluding recent additional Japanese funding. ODA is and will be a significant resource to compensate budget defi-cit and fund key infrastructure projects.

In addition, balance of payments also depends on Vietnam’s outward flow in investment’s in foreign countries and foreign debt repayment which is estimated at 1.5 bil USD/year. It is forecasted that balance of payment deficit this year is around one billion USD. In the near future, this amount will not likely create payment crisis but would put some pressure on foreign reserve’s and the VND exchange rate.

Data released by GSO showed that CPI, an inflation es-timator, increase 0.62% in September 2009 (equivalent to annualized rate at 7.7%), much higher then 0.3% fore-casted by the government experts. This sudden increase was partly due to a one-off reason such as an increase in transportation cost due to the hike in petrol and the start of the schooling year.

There are 3 main factors that have significantly impacted inflation in Vietnam: (1) Money supply; (2) Expectation of consumer and enterprises; (3) Commodity price in the inter-national market:

1. Money supply is usually measured by M2 indicator. In the long run, money supply would be equal to GDP growth and inflation. Year on year M2 has increased from 20.3 % in Q4/2008 to 35.8% QII/2009 according to recent ADB reports. Lower interest rate and 4% interest rate subsidy policy has led to high credit growth, which is 28% in the first nine months of the year. However, there are delays between money supply and inflation due to public expec-tation.

2. Enterprise’s and consumer’s expectation – if people are expecting high inflation, the enterprises will likely raise their product’s price and consumers will more likely ac-

rEMITTANCE (VN)

CONSUMEr prICE INDEx (%)

Source: GSO

Source: GSO

3.4 Inflation pressure might lead to preventive tightening

Bil USD

8.0

6.0

4.0

2.0

-

1.0 1.5

2.1 2.7 3.0

3.8 4.0

6.5

8.0

6.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E

KI U H I V VI T NAM

-

01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09

MoM YoY

28%

19%

2%

3.6%

2.1%

0.6%

CH S GIÁ TIÊU DÙNG (%)


22

cept new pricing. As a result, inflation will come sooner then it might be otherwise. When there is inflation expec-tation, interest rates will rise in the money market as in-vestors need compensation for their inflation risk. There are evidences of such situation’s in the market:

• Deposit rates at commercial bank’s are on the rise, the rate is 9.3 % at An Binh Bank, 9% at Techcom-bank for the twelve month deposits (as show on their websites on 25/09). Vniborr at around 9.2% for 1 year duration. With the current lending cap at 150% of policy rate at 7%, the banks will not likely be very profitable in their lending due to the high cost of capital.

• Number of government bond issuances has not been successful due to the fact that investors expect higher interest rate’s then ceiling rates. According to Vietnam the News agency, “From the beginning of 2009 until 09 September, 36 out of 40 bond’s issuances have failed. Budget deficit will also have negative impact on the interest rate.”

3. Vietnam import is sizable and accounted for nearly 90% GDP in 2008, therefore price level in Vietnam is very much dependent on price level in the international market especially for the raw material commodity price such as crude oil. Decrease in the world commodity price in the second half of 2008 has contributed much to the inflation easing in Vietnam.

Rapid credit expansion, high expectation of interest rates in the money market will put some pressure on inflation at least until the end of 2010. The commodity price is clearly not anymore in the downward trend in order to ease inflation. We believe that the government might want to implement preventive tightening measures sooner then currently expected.

MONEY SUppLY CHANGE (YOY)

INTErBANK INTErEST rATE (VN)

WOrLD CrUDE OIL prICE

Source: EIU, VFM

Source: Reuters

Source: Reuters

-

35.6

41.6

47.5 49.1

37.0

25.8 21.3 20.7

26.5

35.8

-

10

20

30

40

50

60

Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09

%

T NG TR NG CUNG TI N

Prime rate VNIBOR (1 year) Ceiling rate

0

5

10

15

20

25

LÃI SU T LIÊN NGÂN HÀNG

10/07 01/08 04/08 07/08 10/08 01/09 04/09 07/09

0

20

40

60

80

100

120

140

160

GIÁ D U TH GI I

01/01 02/02 03/03 04/04 05/05 06/06 07/07 08/08 09/09


23

1. High level of budget deficit, 6.9% by the government es-timate or up to 10.1% by ADB estimation based on in-ternational norms and practice. Government debt, there-fore, on the rise creating pressure on the budget in the following years.

2. Demand from key export markets will still be weak. This combined with low level pricing has negative impact on the export revenue.

Selection of policy options will facilitate the recovery and growth but not create the shock for the economy as what happened during 2007/2008 which is critical for the sustainable development. In the next section, we will review several policy options which are available:

In the previous sections of the report, we have seen that the Vietnam Economy is facing a number of challenges:

3. Trade deficit is on the rise in recent months and will have a negative impact on the balance of payment and the exchange rate of VND.

4. Expansionary monetary policy, rapid credit growth and high level of budget deficit will create the risk of returning inflation.

4.1 Second stimulus package

Before September 2009, the consensus of many government experts is that the second stimulus package would be needed in 2010 to support economic recovery and to help enterprises restructure their business. It is also a bridging after comple-tion of the first stimulus package. In some extent, availability of further fiscal stimulus has factored in investor’s expecta-tion in the stock market, especially in those companies and industries, which are considered to have benefited from the fiscal stimulus.

However, the recession has reflected its impact on budget revenue in the context of increased spending needed to sup-port the economy. This led to increasing budget deficit as well

as government debt and reduced the policy options that gov-ernment can select from. Recently a series of fresh analysis in the media from government experts and donors like ADB have suggested revaluating the strategy. For example, eco-nomic commission under national assembly suggested finish-ing the current stimulus activities on time rather then starting a second stimulus package”. All this might influence a change in the view of policy-makers.

We believe a smaller package which focuses on SME in the industries that generates considerable employment could positively contribute to public confidence building when the economy recovery is not yet sustainable.

4.2 Exchange rate

Despite the widening of trading room for VND/USD from 3% to 5% and a slight depreciation of VND by the State Bank, the exchange rates at commercial banks still were at the higher border line of the trading room and the rate on black market even higher then that.

We believe that, SBV will continue its slow depreciation policy to support export and restore market balance. Faster depre-ciation might not be appropriate as it can create a shock in the market, encourage investors to move to USD or other foreign currencies and create additional burden on country debt ob-

ligations. As the balance of payment deficits is estimated at one billion USD this year, the pressure on the VNĐ is moder-ate and we believe that the current SBV policy is suitable. In the mean time, weak USD made VND depreciate quite signifi-cantly to other major currencies. However, investors should monitor balance of payments and foreign reserves closely to adjust foreign exchange expectation.

In the longer term, VND might appreciate due to PPP con-vergence effect when inflation is under control at a low level.

4. policy options and forecast

FOrEIGN ExCHANGE rATE (VND VS USD)

Source: Reuters

14.500

15.000

15.500

16.000

16.500

17.000

17.500

18.000

18.500

BI N NG T GIÁ

SBV rate Upper band Lower band Actual rate

10/07 12/07 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09

TrADE BALANCE

Source: GSO

-3

-2

-1

0

1

01/0

8

03/0

8

05/0

8

07/0

8

09/0

8

11/0

8

01/0

9

03/0

9

05/0

9

07/0

9

09/0

9

Bil USD


24

4.3 Interest rate

Experiencing 2007/2008 liquidity crisis, the government is fully aware of the inflation risk as well as the shock that might be cre-ated by tightening measures, therefore the interest rate move-ments is closely monitored.

The message from SBV show political will to stabilize the policy rate toward the end of 2009. However, if inflation is popping up faster then expected, monetary actions might still be needed in the remaining months of the year, like increase the policy rate or reduce the size of subsidized lending program.

In our opinion, the government might want to slightly increase the policy rate by 0.5% toward the end of the year or early next year and step by step increase the rate by another 0.5%-1% afterward. The policy rate could be 8.5% by the end of 2010.

Moderately increasing rate could help to balance the money market, attract deposit and control the currently rapid credit growth. In the case of stable global commodity market, we ex-pect inflation will be 6% to 7% for 2009 and 8-10% for 2010.

General consensus is that Asia, especially emerging coun-tries like China, India, Indonesia and Vietnam will lead the recovering process from the current crisis, although each county would still face their own challenges. Furthermore many research institutions have revised upward their GDP growth forecast for Vietnam in the last two months, for exam-ple ADB, BMI, EIU, HSBC, ANZ, and Credit Suisse.

We believe that, with the right policy actions, GDP in Viet-nam will grow 5-5.2% in the year 2009, achieve 6.5%-6.7% in 2010 and over 7% in 2011. Exports will be recovered only moderately until mid 2010 before the demand will pick up in key markets from the second half of 2010 onwards.

Recent meetings with foreign investors showed that Vietnam is still on their screening thanks’ to the high pace of recovery and potential growth outlook in the medium and long term. Positive expectation also partly reflected in the VN Index re-covery of 146.6% from the lowest level of 235.5 points on the

25/02/09 to 580.9 on 30/09/09, which was mainly driven by the domestic investors.

Rapid growth of VN Index creates risk, which lead to a slight correction in early Oct. 09; however we still believe the me-dium and long-term attractiveness of the stock market, which is supported by economic growth potential. As emerging markets with active participation from private retail investors, the Vietnam stock market volatility will still be high for years to come.

Private investors need to closely monitor economic perform-ance as well as government policy actions to adjust their investment strategy and asset allocation. For the busy inves-tors, who are working in non-investment related businesses, using professional investment instruments such as invest-ment funds or portfolio management services could be well-justified options.

5. Expectation on the economy and stock market

INFLATION AND INTErEST rATE rELATION

Source: Reuters

-1

0

1

2

3

4

5

0

5

10

15

20

25

BI N NG LÃI SU T SO V I L M PHÁT

Deposit Interest rate (1 month, %) Inflation (%, mom, RHS)

06/05 11/05 04/06 09/06 03/07 08/07 01/08 06/08 11/08 04/09 09/09


25

APPENDIX: GLOBAL ECONOMIC RECOVERY

US economy is on the recovering process and showing further improvements.

European outlook is improving

With the trading volume at 139.1% of GDP in 2006, higher then China (67%), Indonesia (44.4%) or Thailand (125.7%), economic recovery in Vietnam depends on the performance of its main trading partners. During QIII/2009, there were in-

creasing numbers of evidences that US, EU, ASEAN, Japan and China are on the recovery path thanks’ to their economic stimulus packages and expansionary monetary policies.

US leading Economic Index (composite indicator - LEI) has improved continuously since April 2009 and increased 0.6 % in September. In the mean time, coincident index stopped its down trend in August and is showing improvement. These were clear signal’s that the economic recovering process in the US has been started. However, this process will be slow

European outlook is improving as the Leading Economic In-dex (LEI) has improved since April 2009. In a recent data release by Conference Board, five out of eight indicators that have higher weight on the LEI basket have improved in July. Based on experience from previous recessions, European economies are likely recovering. However, as in the US, the

and not without risks when trade deficit in August was at -32 billion USD, worse then the -28 billion USD expected. With unemployment at the highest level since 1983 (9.8% in Sep-tember 2009), consumers are and will continue to be cau-tious, therefore reduce their spending and debt level.

pace of recovery will not be fast and unemployment will re-main high for the next few years. Countries that depend on financial services like the UK will likely recover at a slower pace than economies that base in the real economy such as Germany and France.

Recovery in ASEAN countries will be relatively fast. Export-dependent ASEAN economies have suffered as trad-ing volumes slumped due to the financial and economic cri-sis since mid 2008. Due to different structure and the level of economic and financial integration, the severities of reces-sion and the paces of recovery are much different. Countries with higher degree’s of integration like Singapore, Malaysia

and Thailand are expected to have negative growth in 2009 before bouncing back in 2010. Indonesia and Vietnam on the other hand are recovering faster and will record positive growth in 2009 thanks’ to strong domestic consumption and the nature of their export portfolio, which are mostly essen-tial basic products.

CONSUMEr CrEDIT LEADING ECONOMIC INDEx (EU)

Source: Bloomberg Source: Reuters

01/06 04/06 06/06 10/06 01/07 04/07 06/07 10/07 04/0801/08 06/08 10/08 01/09 04/09 09/09

24.5

24.0

23.5

23.0

22.5

22.0

21.5

Debt/ income Credit growth

TÍN DỤNG TIÊU DÙNG

!

8%

6%

4%

2%

0%

-2%

-4%

-6%

90

93

96

99

102

105

108

CH S T NG H P (CHÂU ÂU)

Ngu n: Reuters

!

01/02 10/02 07/03 04/04 01/05 10/05 07/06 04/07 01/08 10/08 07/09


26

Japan is recovering

Recovery in China is clearly the most impressive

Global economy will face a number of challenges during recovery as:

This observation is also supported by the experience from previous recessions in the years 92-94, 97-98, and 2001, when LEI improved, as we have seen from March 2009. In addition 9 out of 10 indicators on the leading basket showed improvement in July 2009. GDP growth was at an annual-ized rate of 3.7% in QII 2009 comparing to - 11.7% in QI. However the recovering process will face the risk of deflation

Recovery in China is clearly the most impressive when GDP growth in the first half of the year recorded at 7.1% and the estimation for the whole year at 8%. IMF has just revised China’s GDP growth forecast in 2010 from 8.5 to 9%, where-as HSBC forecasted at 9.5%. Export value to China con-tributed to only 8% of Vietnam’s export volume in the first seven months of 2009, however it should be noted that the

and week demand from its key export market as well as the domestic market. Japan is the destination for 11% of Viet-nam Export’s. As Vietnam – Japan Economic Partnership has been effective since 1/10/2009, trading volume between the two countries will be on the rise and Japan would be an even more important market for Vietnam.

Chinese economy influenced Vietnam in a number of other ways (1) 23% of the Vietnam’s import’s came from China; (2) Chinese companies are competitors of many Vietnam key export products such as textile, furniture and agricultural products; (3) Weak demand could lead to the dumping of Chinese products in neighboring countries like Vietnam.

1. GDP growth if any in many countries are great for the government stimulus packages and policy. Too early exit from stimulat-ing modes would increase the risk of a re-recession which is what occurred during the 1930s (W shape recovery). On the other hand abusing monetary easing for too long could lead to the risk of inflation.

2. Governments are likely to keep interest rates low for as long as inflation is not a concern. This low capital cost policy could lead to the asset bubble in the stock market especially when other investment instruments such as bonds or real estate are not attractive.

3. High unemployment during economic crisis leads to trade protection in many countries. The most recent event is the US imposition of high tariff on Chinese tire and Chinese counteractions on chicken and automobile parts from the US. Trade protection will slow the global economic recovery process.

4. Major economies in the world need to re-adjust their growth model: US should depend less on debt, domestic consumption and at the same time need to restore the trade balance, whereas China should focus more on the domestic market rather then export as a growth engine. This restructuring process together with low interest rates would results in a weak USD for the foreseeable future.

As this economic recession is a result of a financial crisis, countries with sophisticated financial industries like US and UK will take longer time to be recovered comparing to those that depend on real economy like China, India, Germany or South East Asian Countries.

Source: ADB, VFM

LEADING ECONOMIC INDEx (JApAN)

Source: Reuters

70

75

80

85

90

95

100

105

110

CH S T NG H P (NH T B N)

01/02 10/02 07/03 04/04 01/05 10/05 07/06 04/07 01/08 10/08 07/09

2006 2007 2008 2009e 2010e

Brunei 4.4 0.6 -1.9 -1.2 2.3

Cambodia 10.8 10.2 6.7 -1.5 3.5

Indonesia 5.5 6.3 6.1 4.3 5.4

Lao 8.7 7.8 7.2 5.5 5.7

Malaysia 5.8 6.2 4.6 -3.1 4.2

Philippines 5.3 7.1 3.8 1.6 3.3

Singapore 8.4 7.8 1.1 -5.0 3.5

Thailand 5.2 4.9 2.2 -3.2 3.0

Vietnam 8.2 8.5 6.2 5.1 6.5

GDp growth in ASEAN Countries


27

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NEWSLETTERSecure Site · 2019. 12. 12. · NAV of VF1 as at 30/09/2009 reached VND2,818.1 billion...

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Transcript of NEWSLETTERSecure Site · 2019. 12. 12. · NAV of VF1 as at 30/09/2009 reached VND2,818.1 billion...