VIETNAM | DECEMBER 2013
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The Top 7 Real
the time of year to review your asset strategy going into the New
Year as developed economies show signs of recovery. While
recovery is on the horizon and the Fed will begin tapering as of
January 2014, strong forward guidance of low rates reduces risk and helps to
temper near-term volatility. Expect rates to stay low for 2014 and into 2015.
With this in mind, when you’re allocating your assets and reconsidering
your strategy look to Asia’s emerging and frontier markets for higher return
opportunities. Asia will continue to lead the world in growth - 6% in 2014 and
5.5% in 2013.
However, expectations for Asia should be revised downwards. As a rule, expect
returns to shrink over the next several years across all markets and asset classes
in emerging markets as they continue to converge with developed economies.
2013 was a stabilizing year for Vietnam and the risk reward environment is
beginning to gain clarity. It has been a clean sweep across the board in 2013 as
GDP, inflation, interest rates, forex reserves, having of NPLs, restructuring of the
finance sector have all made gains.
FDI continues to pour into Vietnam as the investment environment is improved
and foreign firms can leverage industry experience to capture leads in the
market. This will continue to strengthen exports, develop the support industries,
buttress the currency, and lead to a rise in M&A deals.
While the indicators are encouraging, there are still uncertainties that lie ahead
such as the progress of financial restructuring, NPLs, forex stability, domestic
demand, and the recovery of developed economies that will dampen foreign
investments in the short term. The Eurozone is expected to expand by 1%-2%,
US by 2%-3%, China by 7%-8%, and Japan by 1.5%.
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As we turn the corner into 2014, here are 7 trends to follow:
1. The economy is growing once again and GDP is forecasted
90% within 1.5 years. Both grades A and B will experience
to grow by 5.7% in 2014 compared to 5.34% in 2013 and
increased demand in the year ahead and should represent
5.03% in 2012. The services and industrial sectors are
the left-tail of future demand riding on GDP and performance
expected to expand payrolls and capital investments driving
of the service sector.
up the appetite for credit. Credit appetite and general
economic expansion will push inflation up to 7.5% from
6.4% in 2013. Expect interest rate to follow suit across the
5. 2013 saw residential finally begin to thaw. Social housing
has shown the most movement as demand outstrips supply.
As confidence re-enters the market and home loans are
gaining momentum, the mid-income segment has also
2. The VND will lose value to the dollar. VND will devalue
seen an uptick in both Q3 and Q4. Both supply and demand
further by 1-5% due to the rebound of major markets such
for mid-income will be healthy in 2014 and we expect a
as the US, China, and Japan. As foreign markets recover,
thawing of the luxury sector by the end of 2014.
their return-to-risk ratios improve beyond that of Vietnam
and result in a net withdrawal of dollars. Strong foreign
trade balance, FDI, and overseas remittances support the
VND and help cushion the drop.
6. Finance reform will make significant gains in 2014 as the
framework is clearly laid out. The VAMC, which has already
made strides in acquiring NPLs worth close to US$900
million from 21 lenders, will be further supported by a legal
Vietnam must focus on reducing country risk as well as
framework to set up a debt trading market. Cross-ownership
increasing the number of products to fill in a risk-return
of financial institutions will be assessed via more stringent
spectrum that currently has many gaps. There are many
auditing and further consolidation will occur.
ways to achieve these goals, such as securitization of
Circular 02, delayed until June 1st, will cast light on the
lending institutions, real estate (such as creating a market
for non performing loans and setting up REITs of properties,
mortgages, and loans), raising the ownership cap of
protected sectors, and tackling the ease of doing business in
Vietnam among other things. The VND will devalue steadily
over the next several years until these are addressed unless
leading markets struggle.
3. Property prices have begun to firm up and have shown
strong downward resistance. Prices will continue to firm,
and in certain classes, such as commercial retail, prices
have already begun to rise. Strong demand for retail has
kicked in 3Q and 4Q 2013 nudging rents up in prime
locations with wide frontages and corner real estate.
4. Commercial office demand rises in the second half of the
year and will apply upward pressure on rents and occupancy
with relatively little new supply. The Vietcombank Tower
will be the major source of supply in 2014, approximately
50,000 sqm NFA, and we expect occupancy to stabilize at
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real balance sheets ++as it lays the guidelines in classifying
assets and provisioning for risk. While driving forward
reform, it will be an additional source of volatility.
7. There will be a proliferation of products such as corporate
bonds and securitization of real estate that will be further
supported by an increase in ownership cap, credit rating
agencies, and improved oversight. Such a proliferation
will encourage the country to convert savings into GDPproducing investments
2013 was year of stabilization. 2014 will a year of early
growth and major reform. However, market fundamentals are
still weak and the country must show strong commitment to
economic reform or else risk falling into prolonged stagnation.
We hope you prosperity in the New Year and let us know your
expectations and how you plan to prepare for it.
Happy New Year!
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