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 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

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

Silver Point

Thomas J. Monaco

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

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.


The VND (Vietnamese Dong) has depreciated only 2.8% against the US$ in the year-to-date, outperforming most Asian currencies (CNY, INR, IDR, PHP -- which have all depreciated 8% or more this year). A key factor supporting that strong currency performance is Vietnam's robust export growth (15.4% YoY in Jan-Sep 2018), which has far outpaced the 11.9% YoY growth in imports -- enabling the trade surplus to widen to US$5.39bn, nearly double the US$2.7bn trade surplus for the whole of 2017 (which was unchanged from 2016). Given the seasonal strength of the trade balance in the final quarter, we expect the trade surplus to widen to US$8 billion in 2018, enabling the current account surplus to widen to 6.5% of GDP (from 2.9% in 2017).  Vietnam's exports have remained robust over the past decade because it is the only one of Asia's 11 largest economies that depends more on US and EU demand than on China. As the US-China trade war heats up, Vietnam is likely to benefit even more -- as the preferred choice of relocation for China-centred supply chains. While this has been an ongoing process over the past decade for labour-intensive products like textiles, shoes and toys, the electronics complex is now rapidly relocating to Vietnam (led by Samsung Electronics). Taiwanese manufacturers are likely to be slightly less enthusiastic (given growing political animosity toward them as "Chinese" firms in Vietnam). But the broad theme of relocation will accelerate -- until they run into land and labour constraints in Vietnam. Despite the large bilateral trade surplus with the US, the Trump administration is no different from the Obama one in seeing Vietnam as a strategic ally, and will encourage relocation there. With the policy (refinancing) rate at 6.25%, Vietnam has a real policy rate of +2.27% (versus inflation of 3.98% YoY in August and September 2018). Inflation averaged 2.8% YoY between October 2017 and April 2018 -- implying a real policy rate of +4.45%; the spurt in oil prices has pushed inflation up and reduced the real interest rate. But Vietnam is likely to allow modest further depreciation rather than tighten monetary policy. Real GDP growth should thus accelerate to 7.5% YoY growth in 2H 2018 (from the 7% YoY growth rate in 1H 2018).

The VND (Vietnamese Dong) has depreciated only 2.8% against the US$ in the year-to-date, outperforming most Asian currencies (CNY, INR, IDR, PHP -- which have all depreciated 8% or more this year). A key factor supporting that strong currency performance is Vietnam's robust export growth (15.4% YoY in Jan-Sep 2018), which has far outpaced the 11.9% YoY growth in imports -- enabling the trade surplus to widen to US$5.39bn, nearly double the US$2.7bn trade surplus for the whole of 2017 (which was unchanged from 2016). Given the seasonal strength of the trade balance in the final quarter, we expect the trade surplus to widen to US$8 billion in 2018, enabling the current account surplus to widen to 6.5% of GDP (from 2.9% in 2017).  Vietnam's exports have remained robust over the past decade because it is the only one of Asia's 11 largest economies that depends more on US and EU demand than on China. As the US-China trade war heats up, Vietnam is likely to benefit even more -- as the preferred choice of relocation for China-centred supply chains. While this has been an ongoing process over the past decade for labour-intensive products like textiles, shoes and toys, the electronics complex is now rapidly relocating to Vietnam (led by Samsung Electronics). Taiwanese manufacturers are likely to be slightly less enthusiastic (given growing political animosity toward them as "Chinese" firms in Vietnam). But the broad theme of relocation will accelerate -- until they run into land and labour constraints in Vietnam. Despite the large bilateral trade surplus with the US, the Trump administration is no different from the Obama one in seeing Vietnam as a strategic ally, and will encourage relocation there. With the policy (refinancing) rate at 6.25%, Vietnam has a real policy rate of +2.27% (versus inflation of 3.98% YoY in August and September 2018). Inflation averaged 2.8% YoY between October 2017 and April 2018 -- implying a real policy rate of +4.45%; the spurt in oil prices has pushed inflation up and reduced the real interest rate. But Vietnam is likely to allow modest further depreciation rather than tighten monetary policy. Real GDP growth should thus accelerate to 7.5% YoY growth in 2H 2018 (from the 7% YoY growth rate in 1H 2018). 

Vietnam: The Winner from US-China Trade Turmoil

* DATC Move a Tiny Positive; and * Net New NPL Growrh is Disturbing to Say the Least;  and * USD 27 bn (9.5% of total loans) in NPLs is due to double by 2020. <h2>Investment Summary</h2>Vietnam has two state-owned and managed debt acquisition companies, the Debt and Asset Trading Corporation (DATC) and the Vietnam Asset Management Company (VAMC). While VAMC is responsible for handling bad debts of commercial banks and financial institutions, the DATC has focused on settlements of bad debt owned by…

* DATC Move a Tiny Positive; and * Net New NPL Growrh is Disturbing to Say the Least;  and * USD 27 bn (9.5% of total loans) in NPLs is due to double by 2020. Investment SummaryVietnam has two state-owned and managed debt acquisition companies, the Debt and Asset Trading Corporation (DATC) and the Vietnam Asset Management Company (VAMC). While VAMC is responsible for handling bad debts of commercial banks and financial institutions, the DATC has focused on settlements of bad debt owned by…

Vietnam Banks - DATC Move A Mere Drop In the Bucket

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 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

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

Vietnam: The Winner from US-China Trade Turmoil

The VND (Vietnamese Dong) has depreciated only 2.8% against the US$ in the year-to-date, outperforming most Asian currencies (CNY, INR, IDR, PHP --...

Prasenjit K. Basu

Vietnam Banks - DATC Move A Mere Drop In the Bucket

* DATC Move a Tiny Positive; and * Net New NPL Growrh is Disturbing to Say the Least; and * USD 27 bn (9.5% of total loans) in NPLs is due to...

Thomas J. Monaco

Price Gauge

52-week Range

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