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.

Alongside democratic Taiwan, communist Vietnam remains a beacon of remarkable success in combating the novel Coronavirus. As of 23 April, Vietnam has just 268 cases and no deaths from Covid-19 -- despite having tested 206,253 individuals. A limited lockdown was imposed at the start of April, but will not need to be extended, since the situation has been well contained (and no new cases of Covid-19 have occurred since 15 April). Transparency in communications about the disease has enabled the government to retain the public's confidence, improving compliance.   Real GDP nonetheless decelerated to 3.8% YoY growth in 1Q 2020, and will likely decelerate slightly further in the current quarter (especially given this month's partial lockdown). However, exports grew 8.8% YoY even in January-February 2020 (despite the delayed return of workers in February from Lunar New Year holidays) and +5.9% YoY in March 2020. With exports outpacing imports, the trade surplus was US$4 billion in 1Q 2020 (and at a record US$12.75 billion over the latest 12 months). Foreign reserves reached record levels of US$81.15 billion in January 2020 (and likely rose further by March), allowing the State Bank of Vietnam (SBV) to cut its policy rate to a 15-year low of 5% on 17th March 2020. The Vietnamese Dong (VND) has been more stable than most EM and frontier-market currencies both this year and in the past 5 years. Given the strong external balances, record-low interest rates, and exceptional success in containing the negative impact of Covid-19, we expect Vietnam's real GDP to rebound strongly to 5.5-6% YoY growth in 2H 2020, making Vietnam one of the world's fastest-growing economies in 2020 (with real GDP growth of 4.8% for the full year). Next year, growth should comfortably return to the 7-7.5% YoY pace. We recommend staying Overweight Vietnam.

Alongside democratic Taiwan, communist Vietnam remains a beacon of remarkable success in combating the novel Coronavirus. As of 23 April, Vietnam has just 268 cases and no deaths from Covid-19 -- despite having tested 206,253 individuals. A limited lockdown was imposed at the start of April, but will not need to be extended, since the situation has been well contained (and no new cases of Covid-19 have occurred since 15 April). Transparency in communications about the disease has enabled the government to retain the public's confidence, improving compliance.   Real GDP nonetheless decelerated to 3.8% YoY growth in 1Q 2020, and will likely decelerate slightly further in the current quarter (especially given this month's partial lockdown). However, exports grew 8.8% YoY even in January-February 2020 (despite the delayed return of workers in February from Lunar New Year holidays) and +5.9% YoY in March 2020. With exports outpacing imports, the trade surplus was US$4 billion in 1Q 2020 (and at a record US$12.75 billion over the latest 12 months). Foreign reserves reached record levels of US$81.15 billion in January 2020 (and likely rose further by March), allowing the State Bank of Vietnam (SBV) to cut its policy rate to a 15-year low of 5% on 17th March 2020. The Vietnamese Dong (VND) has been more stable than most EM and frontier-market currencies both this year and in the past 5 years. Given the strong external balances, record-low interest rates, and exceptional success in containing the negative impact of Covid-19, we expect Vietnam's real GDP to rebound strongly to 5.5-6% YoY growth in 2H 2020, making Vietnam one of the world's fastest-growing economies in 2020 (with real GDP growth of 4.8% for the full year). Next year, growth should comfortably return to the 7-7.5% YoY pace. We recommend staying Overweight Vietnam. 

Remarkable Success in Combating Covid-19 Ensures Relative Economic Resilience

Thematic (Sector/Industry)

<ul>
<li>
 Fitch Bank Downgrades: Fitch Ratings (Fitch) has finally gotten around to revising the outlook of the long-term issuer default ratings from Positive to Stable on two state-owned banks and a wholly foreign-owned bank in Vietnam, and the outlook of two JSC banks from Stable to Negative;</li>
<li>
Fitch Concerns: The downgrades stem from sharply lower growth in Vietnam associated with the corona virus pandemic which likely will negatively impact commercial bank credit profiles over the near-term.  Thin capital buffers are another area of concern, as some major banks still struggling to comply with local Basel II requirements. Credit stresses, even if not all are reported as impaired during the relief period, suggest that credit impairments accruing; and</li>
<li>
Our Continued Concerns: We continue to find that net new NPL growth ranges between 50%-150% per annum over the past five years through 2019 – despite the stated NPL figure declining on a growthy loan portfolio and placement of problem loans below the line. Capital requirements under Basel II being extremely difficult to attain/maintain without prospects of capital raise or shrinking their balance sheets, commercial banks are set to continue to struggle to grow.</li>
</ul>



 Fitch Bank Downgrades: Fitch Ratings (Fitch) has finally gotten around to revising the outlook of the long-term issuer default ratings from Positive to Stable on two state-owned banks and a wholly foreign-owned bank in Vietnam, and the outlook of two JSC banks from Stable to Negative;

Fitch Concerns: The downgrades stem from sharply lower growth in Vietnam associated with the corona virus pandemic which likely will negatively impact commercial bank credit profiles over the near-term.  Thin capital buffers are another area of concern, as some major banks still struggling to comply with local Basel II requirements. Credit stresses, even if not all are reported as impaired during the relief period, suggest that credit impairments accruing; and

Our Continued Concerns: We continue to find that net new NPL growth ranges between 50%-150% per annum over the past five years through 2019 – despite the stated NPL figure declining on a growthy loan portfolio and placement of problem loans below the line. Capital requirements under Basel II being extremely difficult to attain/maintain without prospects of capital raise or shrinking their balance sheets, commercial banks are set to continue to struggle to grow.


Vietnam

VinaCapital Vietnam Opportunity Fund Limited is a close-ended investment company incorporated in the Cayman Islands. The aim of the Company is to achieve medium to longer-term capital appreciation and providing an attractive level of income. The Company invests in listed and unlisted companies, debt, assets and other investment opportunities in Vietnam and surrounding Asian countries.

VinaCapital Vietnam Opportunity Fund (VOF LN)

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VinaCapital Vietnam Opportunity Fund (VOF LN)

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

Remarkable Success in Combating Covid-19 Ensures Relative Economic Resilience

Alongside democratic Taiwan, communist Vietnam remains a beacon of remarkable success in combating the novel Coronavirus. As of 23 April, Vietnam...

Prasenjit K. Basu

Vietnam – Fitch Downgrades Banks

Fitch Bank Downgrades: Fitch Ratings (Fitch) has finally gotten around to revising the outlook of the long-term issuer default ratings from...

Thomas J. Monaco

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