The Vietnam Story

For the past ten years, Vietnam has been the second fastest growing economy in Asia, ranking after China. The country’s economy has experienced the average growth rate of 7.5%, GDP per-capita soaring from USD375 in 1999 to USD1040 in 2008. After the WTO assession, Viet Nam’s economy has benefited from its Government’s open-door policy. With a stable political environment and its economic potential, Viet Nam is an attractive destination for foreign investors.

The Vietnamese Government has been endeavouring to create a favourable investment environment by continuing to complete Viet Nam’s legal system and introducing important incentives for foreign investors. With a young population (60% of the country’s population is aged under 40), low wages and increasing productivity, Vietnam is considered one of the key destination for foreign companies looking to expand their business in Asia. For the year 2008, Vietnam has approved over USD60 billion of foreign investments, while disbursements stood at USD11.5 billion. Although the target for FDI figure in 2009 is low as a result of the world’s economic crisis, Vietnam economy is expecting higher FDI inflows in the coming years, when the global economy is soon to be recovered.

Despite of the global economic difficulties, for the first 3 quarters of 2009, Vietnam has achieve the growth rate of 4.59%, or 90% of the country’s full year target. Since the beginning of 2009, Vietnam has been controlling the monetary and fiscal policies efficiently to weather the economic storm. Economic stimulus packages have been implemented to boost the economy and encourage growth. According to Standard and Poor’s most recent forecast, Vietnam could achieve the growth rate of 7%-7.5% in the medium term.

Banking industry – the Heart of the Economy

During the previous years, the banking system has provided a great capital source for the economy, accounting for approximately 16% to 18% of GDP annually and was almost equivalent to 50% of total investment capital of the country. This proves that the banking system has developed strongly and efficiently and played a crucial role as the connection between production, consumption, and savings.

Previously, state-owned commercial banks were key players in supporting the state economy thanks to their advantages in capital and market share. However, with the strong development of private entities recently, joint stock commercial banks have had a considerable improvement in their source of funds and expansion of their business and service network for small and medium corporations. Joint stock commercial banks’ income growth rate is around 60% to 120% annually. Especially in 2007, the growth rate of joint stock commercial bank’s charter capital was 94% in comparison with that in 2006. Whereas, state-owned commercial banks have only focused on state corporations, having low income growth rates of approximately 20% per year. The participation of 100% foreign banks recently has made the competition tougher. On the positive point of view, the whole banking sector in Vietnam is now improving in both product diversification as well as service quality.

In 2006 and 2007, the excessive growth of the economy together with the rapid increase in money supply circulation in comparison with the economic absorbability had caused high inflation and bubbles in the stock and real estate markets. The State Bank of Vietnam, with inflation restraint targets, have applied monetary tightening policy to reduce money in circulation. The banking system, the bridge for economic capital, has been directly influenced by this tightening monetary policy.

Source: IMF

At the same time, the stock market was becoming less attractive with the Decree 03 which limited securities loan from banks to 3%. Real estate market bubble also came across which made it weaker for the financial system as a whole. External economic difficultied and credit crisis had badly affect the country in every sector.

With excessive fiscal and monetary control, Vietnam has been successfully managed to encounter the most difficult time. The State bank of Vietnam has been keeping its prime interest rate steady at 7%/year for nearly 10 months til now. Thanks to the Government’s stimulus package which was very helpful to keep businesses in a good shape. Policy makers are going to control the financial system securely for economic stability and future growth.

The Stock Market

The Vietnam stock market was first introduced in 2000 under the name Ho Chi Minh Stock Exchange (HOSE) with only two stocks. The market was actually active since 2005 with the establishment of the second market namely Hanoi Stock Exchange (HNX). The market was small in terms of either volume of listed shares or the number of tickers. It was at the very early stage of development.

In 2006, the HOSE achieved an outstanding 147% growth, becoming the best performing market in the region. Moreover, the Vietnam Index (VNI) has outperformed the MSCI Emerging market index since 2005. The rapid privatization of SOEs in recent years has adding more players into the stock market. The number of listed sotcks has increased by 8 times from 2005 to July 2009. There are now 181 companies listed on HOSE and 237 companies on HNX. Liquidity has also dramatically improved with turnover volume and value by 65 and 90 times respectively in the same period. Total market trading value for one day has reached as high as USD500 million in early Octorber 2009.

As a characteristic of young capital market, Vietnam’s stock market turnover comes mainly from retail investors. Foreign investors usually focus on blue-chip stocks in core industries of the economy such as infrastructure, financial and real estate. As a result of financial crisis, the stock market has plunged 50% since its peak of 1107 points and foreign investors participation was declined. However, as we may see the macroeconomic environment of Vietnam is now recovered and there are dozens of investment opportunities for investors looking for high return investment in Vietnam. The most attractive sectors are mainly real estate, consumer, energy and power, infrastructure which we may provide in details upon request. In this limited space, we would like to picture the broad view of the Vietnam market for our clients to get started.

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