Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Saigon Thuong Tin Commercial / Event-Driven

<ul>
<li>There are 8 additions to the MVIS Vietnam Index at the upcoming rebalance at the close on 18 March. Moderate impact on most of the adds.</li>
<li>There are some stocks that have large float changes; watch <a href="https://www.smartkarma.com/entities/saigon-thuong-tin-commercial" target="_blank" data-smartkarma-citation="entities:650:1" rel="noopener">Saigon Thuong Tin Commercial (STB VN)</a>. Over 1 day of ADV to sell on some stocks due to capping changes.</li>
<li>At the December rebalance, all 5 adds jumped the day post announcement and then stayed in a range till implementation of the changes.</li>
</ul>


There are 8 additions to the MVIS Vietnam Index at the upcoming rebalance at the close on 18 March. Moderate impact on most of the adds.
There are some stocks that have large float changes; watch Saigon Thuong Tin Commercial (STB VN). Over 1 day of ADV to sell on some stocks due to capping changes.
At the December rebalance, all 5 adds jumped the day post announcement and then stayed in a range till implementation of the changes.


MVIS Vietnam Index Rebalance: Eight Additions & Some Big Float Changes

Bank for Foreign Trade of Vietnam / Event-Driven

<ul>
<li>Idico Corp, Itaco, Vinh Hoan Corp, Khang Dien House Trading And Investment Jsc and Van Phu will be added to the MVIS Vietnam Index at the close on 17 December.</li>
<li>The inclusions have run up a lot over the last few months and the passive buying impact will vary between 0.24-1.76 days of ADV. That's not a lot.</li>
<li>There are a few current constituents where the drop in index weight will mean selling from the ETF. These stocks could be more interesting from a trading perspective.</li>
</ul>


Idico Corp, Itaco, Vinh Hoan Corp, Khang Dien House Trading And Investment Jsc and Van Phu will be added to the MVIS Vietnam Index at the close on 17 December.
The inclusions have run up a lot over the last few months and the passive buying impact will vary between 0.24-1.76 days of ADV. That's not a lot.
There are a few current constituents where the drop in index weight will mean selling from the ETF. These stocks could be more interesting from a trading perspective.


MVIS Vietnam Index Rebalance: Inclusions Gone Parabolic

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

The export-led economy has succumbed to the impact of a severe outbreak of Covid in the current quarter -- after having successfully contained the pandemic in 2020 and 1H 2021. Vietnam had just 16,863 Covid cases until end-June 2021, but that number has jumped to 645,640 by mid-September. The resulting economic disruptions caused exports to decline 3.3% YoY in August 2021. Apart from pandemic-related disruptions, however, the mild appreciation of the VND (+1.6% since end-2020, after a year of stability in 2020 and 8 years of mild depreciation) had contributed to a swing from steady trade surpluses in 2019 and 2020 to monthly trade deficits in 6 of the past 8 months. Vietnam's imports expanded 34.6% YoY in Jan-Aug 2021, strongly outpacing export growth (+23.8% YoY) for the period.   Vietnam's real GDP expanded 2.9% in 2020 (one among very few economies to have expanded last year) as the pandemic was well-contained in 2020 after tight movement controls were established during 2Q 2020 in any pocket of the country where an outbreak was reported. This year, real GDP accelerated to 6.6% YoY growth in 2Q 2021 (benefitting from the low base of 0.4% YoY growth in 2Q 2020) from 4.6% YoY in 1Q 2021, but growth is expected to moderate sharply in the current quarter -- and full year real GDP growth is likely to be a modest 4% in 2021, despite the relatively strong start in 1H 2021. With inflation still well-contained (2.8% YoY in August 2021), the real policy rate remains solidly positive. The current account surplus (likely around 5.5% of GDP in 2020) is likely to shrink this year to below 1% of GDP. However foreign reserves (US$101.26 billion in May 2021, the latest available) still provide about 4 months of import cover. Given that inflation is moderate, growth is slumping and the strong VND is hurting the trade balance, we expect a 50bp rate cut by December 2021. In the near-term, however, the movement restrictions and slump in tourist inflows will slow the economy further, and we would recommend being underweight Vietnam.

The export-led economy has succumbed to the impact of a severe outbreak of Covid in the current quarter -- after having successfully contained the pandemic in 2020 and 1H 2021. Vietnam had just 16,863 Covid cases until end-June 2021, but that number has jumped to 645,640 by mid-September. The resulting economic disruptions caused exports to decline 3.3% YoY in August 2021. Apart from pandemic-related disruptions, however, the mild appreciation of the VND (+1.6% since end-2020, after a year of stability in 2020 and 8 years of mild depreciation) had contributed to a swing from steady trade surpluses in 2019 and 2020 to monthly trade deficits in 6 of the past 8 months. Vietnam's imports expanded 34.6% YoY in Jan-Aug 2021, strongly outpacing export growth (+23.8% YoY) for the period.   Vietnam's real GDP expanded 2.9% in 2020 (one among very few economies to have expanded last year) as the pandemic was well-contained in 2020 after tight movement controls were established during 2Q 2020 in any pocket of the country where an outbreak was reported. This year, real GDP accelerated to 6.6% YoY growth in 2Q 2021 (benefitting from the low base of 0.4% YoY growth in 2Q 2020) from 4.6% YoY in 1Q 2021, but growth is expected to moderate sharply in the current quarter -- and full year real GDP growth is likely to be a modest 4% in 2021, despite the relatively strong start in 1H 2021. With inflation still well-contained (2.8% YoY in August 2021), the real policy rate remains solidly positive. The current account surplus (likely around 5.5% of GDP in 2020) is likely to shrink this year to below 1% of GDP. However foreign reserves (US$101.26 billion in May 2021, the latest available) still provide about 4 months of import cover. Given that inflation is moderate, growth is slumping and the strong VND is hurting the trade balance, we expect a 50bp rate cut by December 2021. In the near-term, however, the movement restrictions and slump in tourist inflows will slow the economy further, and we would recommend being underweight Vietnam. 

Vietnam: The Rockstar Economy Succumbs to Covid and a Strong VND; Rate Cut Near?

The start of US investigations of Vietnam as a currency manipulator highlights Vietnam's success as the key beneficiary of trade diversion from China as the US-China trade war accelerates. Vietnam's trade surplus has scaled new heights this year, and it is one of the few economies globally that has avoided even a single quarter of YoY economic contraction. Although the US will conclude that Vietnam manipulates its currency, strategic considerations will preclude (or at least postpone) any countervailing actions by the US, although Vietnam will be persuaded to allow more US imports. We recommend staying Overweight this frontier market. The Trump administration is initiating an investigation of Vietnam's currency practices under section 301 of the 1974 Trade Act. Vietnam's bilateral trade surplus with the US (US$39.5 billion in 2018, US$55.8 billion in 2019, and US$42.4 billion in January-August 2020) is the fourth-largest such surplus among all US trading partners.  A preliminary investigation by the US Treasury and Commerce departments has already concluded that Vietnam is a currency manipulator -- unsurprising, given that Vietnam has had current account surpluses for the past 8 years (5% of GDP in 2019) but its currency is about 10% weaker than 5 years ago, and foreign reserves have risen by a third in the last 12 months to a record high of US$83.4 billion. Although the technical finding will likely conclude that Vietnam is a currency manipulator, the US (especially under a potential Biden administration) will be unlikely to take overt action. Instead, the US will likely work behind the scenes to get Vietnam to import more from the US, including farm products, defense equipment and some manufactures. Vietnam's strategic importance will prevent the US (even under an improbable second Trump term) from imposing sanctions, except as a tough negotiating tactic. However, the publicity around the issue will bring additional attention to the fact that Vietnam is the single biggest beneficiary of trade diversion from China as a result of the expanding US-China trade war. Vietnam has just 85 active cases of Covid-19, and has suffered just 35 deaths. Consequently, it is one among very few economies in Asia (and worldwide) that has not suffered even a quarter of YoY economic contraction (instead seeing real GDP grow 2.2% YoY in Jan-Sep 2020). More economic reform aimed at opening its equity market to foreign inflows, ensuring a higher free float for more of its listed companies, and accelerating the pace of privatization will become an additional focus in the year ahead. As these steps are adopted, the prospect will rise of Vietnam being included as an emerging market in MSCI indices no later than 2022. We recommend staying Overweight Vietnam in its final year or two as a frontier market.

The start of US investigations of Vietnam as a currency manipulator highlights Vietnam's success as the key beneficiary of trade diversion from China as the US-China trade war accelerates. Vietnam's trade surplus has scaled new heights this year, and it is one of the few economies globally that has avoided even a single quarter of YoY economic contraction. Although the US will conclude that Vietnam manipulates its currency, strategic considerations will preclude (or at least postpone) any countervailing actions by the US, although Vietnam will be persuaded to allow more US imports. We recommend staying Overweight this frontier market. The Trump administration is initiating an investigation of Vietnam's currency practices under section 301 of the 1974 Trade Act. Vietnam's bilateral trade surplus with the US (US$39.5 billion in 2018, US$55.8 billion in 2019, and US$42.4 billion in January-August 2020) is the fourth-largest such surplus among all US trading partners.  A preliminary investigation by the US Treasury and Commerce departments has already concluded that Vietnam is a currency manipulator -- unsurprising, given that Vietnam has had current account surpluses for the past 8 years (5% of GDP in 2019) but its currency is about 10% weaker than 5 years ago, and foreign reserves have risen by a third in the last 12 months to a record high of US$83.4 billion. Although the technical finding will likely conclude that Vietnam is a currency manipulator, the US (especially under a potential Biden administration) will be unlikely to take overt action. Instead, the US will likely work behind the scenes to get Vietnam to import more from the US, including farm products, defense equipment and some manufactures. Vietnam's strategic importance will prevent the US (even under an improbable second Trump term) from imposing sanctions, except as a tough negotiating tactic. However, the publicity around the issue will bring additional attention to the fact that Vietnam is the single biggest beneficiary of trade diversion from China as a result of the expanding US-China trade war. Vietnam has just 85 active cases of Covid-19, and has suffered just 35 deaths. Consequently, it is one among very few economies in Asia (and worldwide) that has not suffered even a quarter of YoY economic contraction (instead seeing real GDP grow 2.2% YoY in Jan-Sep 2020). More economic reform aimed at opening its equity market to foreign inflows, ensuring a higher free float for more of its listed companies, and accelerating the pace of privatization will become an additional focus in the year ahead. As these steps are adopted, the prospect will rise of Vietnam being included as an emerging market in MSCI indices no later than 2022. We recommend staying Overweight Vietnam in its final year or two as a frontier market. 

Vietnam in Robust Health Despite Transient Threat of US S301 Action

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Vietnam Technological & Commer / Equity Bottom-Up

*Silly Season at Techombank:Vietnam Technological and Commercial JSB (TCB.VN) [Techombank] was able to post a 1Q20 result of VND 2.5 bn  - improving VND 830.9 mn (51.1%) linked quarter. While we have always believed Techombank to be the best house in a bad neighborhood, these numbers make little sense in light of the COVID-19 pandemic which has eviscerated the performance of every other bank that we follow. Reviewing the Techombank result announcement, the numbers suggest that while loss provisions increased 151% linked quarter Techombank posted incredibly positive operating jaws – with revenues increasing 25.5% and costs contracting 0.4%;*Credit Substantially Weaker:In reviewing the problem loan book, Techombank’s figures simply don’t add. We find that  - despite its challenges in properly classifying problem assets – net new NPLs actually increased VND 2.8 bn or almost 92% on an annualized basis – which is quite high; and*Provisions Set To Increase From Here: While we give Techombank credit for increasing its loss provisioning efforts by VND 464.2 mn (151%) linked quarter, the level of provisioning seems far from inadequate for the known and potential risk in this loan portfolio. It is disappointing to see that a name such as Techombank is pulling on credit levers and playing the earnings growth game. By our calculation, loss provisions should have been closer to VND 3.5 bn in 1Q20 alone which would bring earnings into a more realistic area of VND 500 mn or 20% of stated results.

*Silly Season at Techombank:Vietnam Technological and Commercial JSB (TCB.VN) [Techombank] was able to post a 1Q20 result of VND 2.5 bn  - improving VND 830.9 mn (51.1%) linked quarter. While we have always believed Techombank to be the best house in a bad neighborhood, these numbers make little sense in light of the COVID-19 pandemic which has eviscerated the performance of every other bank that we follow. Reviewing the Techombank result announcement, the numbers suggest that while loss provisions increased 151% linked quarter Techombank posted incredibly positive operating jaws – with revenues increasing 25.5% and costs contracting 0.4%;*Credit Substantially Weaker:In reviewing the problem loan book, Techombank’s figures simply don’t add. We find that  - despite its challenges in properly classifying problem assets – net new NPLs actually increased VND 2.8 bn or almost 92% on an annualized basis – which is quite high; and*Provisions Set To Increase From Here: While we give Techombank credit for increasing its loss provisioning efforts by VND 464.2 mn (151%) linked quarter, the level of provisioning seems far from inadequate for the known and potential risk in this loan portfolio. It is disappointing to see that a name such as Techombank is pulling on credit levers and playing the earnings growth game. By our calculation, loss provisions should have been closer to VND 3.5 bn in 1Q20 alone which would bring earnings into a more realistic area of VND 500 mn or 20% of stated results.

Vietnam

Market Vectors Vietnam ETF is an exchange traded fund incorporated in the USA. The Fund's objective is to replicate as closely as possible the price and yield performance of the Market Vectors Vietnam Index. The Fund invests at least 80% of its total assets in securities that comprise the Fund's benchmark index.

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Market Vectors Vietnam ETF (VNM US)

MVIS Vietnam Index Rebalance: Eight Additions & Some Big Float Changes

There are 8 additions and quite a few float changes to the MVIS Vietnam Index at the March rebalance. The one-way trade is US$80m and over a day of...

Brian Freitas

MVIS Vietnam Index Rebalance: Inclusions Gone Parabolic

There are 5 inclusions to the MVIS Vietnam Index that will be implemented at the close on 17 December. The adds have all rallied a lot in the last...

Brian Freitas

Vietnam: The Rockstar Economy Succumbs to Covid and a Strong VND; Rate Cut Near?

Imports (+35%YoY) have outpaced exports (+24%) in Jan-Aug'21, swinging the trade balance to deficits, partly because of a strong VND & the Covid...

Prasenjit K. Basu

Vietnam in Robust Health Despite Transient Threat of US S301 Action

The US s investigating Vietnam's currency practices, highlighting that it has the 4th-largest bilateral trade surplus among all US trading...

Prasenjit K. Basu

Techombank – A Little Hocus Pocus

*Silly Season at Techombank:Vietnam Technological and Commercial JSB (TCB.VN) [Techombank] was able to post a 1Q20 result of VND 2.5 bn -...

Thomas J. Monaco

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