Vietnam 2014

Will the Tiger roar again?

October 2013
Sumit Dutta Chief Executive Officer HSBC Vietnam

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A young country with significant upside potential

Vietnam labour cost

Young, educated, population.

and

hardworking

63% of the population under 35, median age of 27. Below China (35) and Thailand (34). 94% literacy rate. Ahead of Indonesia and Malaysia.
% of population with access to banking system

Official poverty rate reduced from 58% (1993) to single digits today Trend towards urbanisation with 30% of the population now live in cities. Expected to grow to 40% by 2020. Young banking industry opened up only since 1995.
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Vietnams progression over the years

Key data
Vietnam 2010 2011 2012 Q3 2013

How Vietnam has progressed over the years GDP growth consistently over 5% Exports has grown from USD72B in 2010 to USD114B in 2012 and reached USD 96B in 3Q13. Trade balance reasonable and on an improving trend FEX reserves grew 200% over a two year period VND was stable against the USD 3 month VNIBOR decreased from double digit of over 13% to c.5% in 2013.
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GDP (%)

6.8

5.9

5.03

5.1

CPI (y-o-y,%)

9.1

18.6

6.8

6.3

Exports (%)

26.4

33.3

18.3

15.7

Imports (%) Trade balance (USD bln) FEX reserves (USD bln)

21.2

24.7

7.1

15.5

-12.6

-9.5

0.3

-0.1

12.9

11.5

20

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Not much to cheer about in 2013

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The ramifications of unbridled growth

Credit growth between 35%-55% per annum from 2007-2001 Much of which went into speculative industries Real estate bubble Volatility in gold and the stock market High inflation Excessive interest rates leading to companies going bust

The fallout is still being experienced today

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The recent environment

Drop in customer confidence Decreased domestic consumption Reduction in investment Interest rates low but corporates reluctant to borrow Bad debts in the banking system Not much progress on SOE reform

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Credit growth on a downward trend

Vietnams growth historically driven by credit Credit growth in 2013 at 6.5% versus target at 12% (2012: 9%)

Source: KPMG Vietnam Banking Survey 2013

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NPLs on the rise

True picture could be worse Causes include lack of corporate governance, transparency and poor credit models NPL Rate
5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Apr 2013

4.67% 4.08% 3.2% 2.9% 2.6% 2.0% 2.2% 3.5% 3.0% 3.4%

Source: KPMG Vietnam Banking Survey 2013; SBVs Official Data

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Vietnam real estate an example of condominiums

Average selling prices for condos in HCMC and Hanoi on downward trend New launches have slowed significantly since 2010
Ho Chi Minh City
Average selling price (USD/sqm) Condominium Launch, HCMC

Hanoi
Secondary Price Change New Launch Supply (Units)

Source: CBRE

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Vietnam stock market 2009-2013

Still below September 2009 high Improvement seen during the last nine months

Source: Bloomberg

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Consumer confidence dropped in 2012 major concerns are the economy, inflation, job security, and health
2010-2012 Vietnam Consumer Confidence Index

Major concerns over the next six months

Source: AC Nielsen 2013

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What are consumers spending their money on?

How to utilize spare cash after covering essential living expenses (as of Q4 2012)
70% 60% 60% 50% 40% 30% 20% 10% 0% 30% 29% 28% 27%

24% 15% 11% 6% 5%

Source: AC Nielsen 2013

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But Vietnam looks rosier from afar

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VND stability vis a vis USD

21,400

21,200

21,000

20,800

20,600

20,400

20,200 22-Aug-11

22-Nov-11

22-Feb-12

22-May-12

22-Aug-12

22-Nov-12

22-Feb-13

22-May-13

22-Aug-13

Official

Floor
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Ceiling

Market

Third best performing currency in Asia (YTD August 2013)

Country China Hong Kong Best Performing Currency vs USD YTD August 2013 1.79% -0.07%

Vietnam
Taiwan Korea Singapore Thailand New Zealand Philippines Malaysia Japan Indonesia Australia India
Source: Bloomberg

-1.5%
-3.22% -4.71% -4.81% -5.43% -6.27% -7.92% -8.83% -11.17% -12.68% -14.50% -15.47%
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Other positive macroeconomic trends

Inflation is expected to stay contained in the next 3 months

Falling interest rates (3 month VNIBOR)

Source: HSBC, Markit

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Vietnam five year CDS at all-time low

Source: Reuters

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FDI Strong and sustainable flows to Vietnam

Source: HSBC, Markit

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Top 10 active FDI by business sector (Over last 4 years)

Electricity, Gas, and AC Supply 8%

Others 13%

Construction 4% Acommodation & Food Service 2% Manufacturing 56% Real Estate 17%

Source: Foreign Investment Agency

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Top FDI by country (Over last 4 years)

(USD bio)
18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 -

Japan

Singapore

South Korea

Hong Kong

BVI

Taiwan

China

US

Malaysia

Others

Source: Foreign Investment Agency

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Competitive and attractive to overseas investors

Source: Internet

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In Vietnams current development stage who is thriving?

Source: AC Nielsen 2013

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Who is thriving?
Beverages Favorable demographic shifts and rising affluence provide significant scope for growth Alcoholic drinks value sales CAGR, 2012 to 2017: +13.5%. Soft drinks value sales CAGR, 2012 to 2017: +13.7%.

Pharmaceutical Local market valued at US$2.4bn in 2011 Expected to grow to US$5.4bn by 2016, equating to a compound annual growth rate (CAGR) of 17%

Education Rapid growth of private, technical, linguistic and secondary education Number of students has risen 95% from 2006-2011 and per capita spending has increased 33%
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Source: BMI

Who is thriving?
Agriculture and commodity Coffee production growth to 2016/17: 28% to 29.1mn bags Poultry production growth to 2016/17: 27% to 954,000 tonnes Milk production growth to 2015/16: 24% to 398,000 tonnes Personal Care Consumers, especially those living in urban areas, are gaining exposure and have increasing demand for beauty and personal care products. Value growth and product availability are both expected to be strong. Segment growth of 60% from 2006-2010

Source: BMI

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Top trade partners

Top export locations
2010 USDb 1 2 3 4 5 US EU ASEAN JAPAN CHINA 14.2 11.3 9.1 7.7 7.3 2011 USDb US EU ASEAN CHINA JAPAN 16.7 16.5 13.6 10.8 10.6 % Growth (YoY) 17.5 45.4 31.5 47.6 37.8 2012 USDb EU US ASEAN JAPAN CHINA 20.3 19.6 17.3 13.1 12.2 % Growth (YoY) 22.5 15.6 27.2 21.4 10

Top import locations

2010 USDb 1 2 3 4 5 CHINA ASEAN KOREA JAPAN EU 17.9 14.5 8.7 8.1 5.5 2011 USDb CHINA ASEAN KOREA JAPAN EU 24.6 20.9 13 10.2 7.5 % Growth (YoY) 37.4 44.1 49.4 25.9 36.36 PUBLIC 2012 USDb CHINA ASEAN KOREA JAPAN EU 28.9 21.0 15.6 11.7 8.8 % Growth (YoY) 17.6 0.3 18.4 12.2 13.3
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ASEAN Economic Community (AEC)

The AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital
-ASEAN Organization

Accelerate regional economic integration by 2015 Nine countries include: Brunei, Cambodia, Indonesia, Laos, Philippines, Malaysia, Myanmar, Singapore, Thailand, and Vietnam Objectives: A. Single Market and Production Base Competitive Economic Region Equitable Economic Development Integration into the Global Economy

Source: AC Nielsen 2013, ASEAN Org.

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IMPACTS OF AEC
ASEAN seen as a regional/single market of c.600 million people Increased investment and funds from within ASEAN Enhanced focus on SMEs Greater tourism opportunities Hard and soft infrastructure development are priorities Businesses may pursue sales opportunities across the region Focus on cost efficiencies by integrating/centralizing operations M&A activity within SEA e.g. Siam Cement Group, CP Group acquiring businesses in Vietnam

Source: Business in Asia

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Trans-Pacific Strategic Economic Partnership (TPP)

Vietnam, given its significant population and quickly growing economy, may hold the greatest potential for increasing economic relations with the US moving forward
-US Congressional Research Service

Proposed regional FTA under negotiation between US and 10 other countries So far 11 countries included: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, US, and Vietnam Objectives: A. Achieving a comprehensive and high standard regional FTA that eliminates/reduced trade barriers and increases opportunities for US trade and investment B. Allowing US to play a role in developing a broader platform for trade liberalization in Asia-Pac C. Providing US with an opportunity to establish new rules on emerging trade issues

Source: US Congressional Research Service

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IMPACTS OF TPP

Contribute to Vietnams GDP growth Strong trade with US Capturing greater exports in manufacturing industries where Chinas comparative advantage in fading Overall boost to exports Higher income enabling reinvestment and more rapid growth

Source: Amcham Vietnam, The Trans-Pacific Partnership and Asia-Pacific PUBLIC Integration: A Quantitative Assessment Peter A. Petri, Michael G. Plummer, and Fan Zhai

HSBC Forecast for 2014

HSBC's key Vietnam Economic Forecast GDP (%) GDP per capital (USD) CPI (end year, %) Trade balance (USD bn) Intl FX reserves (USD bn) USD/VND (end of period) Policy rate (OMO, end year, %)

2013F 5.2 1,750 6.7 +0.6 30 21,250 6.0

2014F 5.4 1,971 8.3 -0.7 35 21,500 7.0

Source: Business in Asia

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The way forward what does this mean to me?

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Do not expect miracles in 2014

SOEs will continue to be a drag on growth Banking systems NPLs will take time to resolve Real estate market will improve slowly Inflation is expected to remain contained VND expected to remain stable though small devaluations might happen FDI inflows should continue Exports expected to flourish and grow

Key issue is customer confidence if sentiment improves, the recovery will be quicker.

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Surviving and thriving in 2014

Liquidity is key there could be opportunities for cash rich companies Continue to grow market share when the tiger wakes up, you need to be ready! Review your business model and be flexible to cope with changing trends Great opportunity to restructure to become better/stronger Actively managing market (fex and interest rates) and counterparty risks Choose the right banking partners

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Disclaimer
HSBC Bank Vietnam Limited (HSBC) has prepared this document (the Document) for information purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar contractual document. This Document should also not be construed as an offer for sale of or subscription for any investment, nor is it calculated to invite/solicit any offer to purchase or subscribe for any investment. HSBC has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Document. HSBC and its affiliates and/or its or their respective officers, directors and employees may have positions in any securities mentioned in this Document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and/or any of its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this Document (or in related investments), may sell them to or buy them from clients on a principal or discretionary basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. As HSBC is part of a large global financial services organisation, it or one or more of its affiliates may have certain other relationships with the parties relevant to the proposed activities as set out in this Document, and these proposed activities may give rise to a conflict of interest, which the addressee hereby acknowledges. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This Document, which is not for public circulation, must not be copied, transferred or the content disclosed to any third party and is not intended for use by any person other than the addressee or the addressee's professional advisers for the purposes of advising the addressee hereon. HSBC Bank (Vietnam) Limited Level 6 Saigon Metropolitan building 235 Dong Khoi Street, District 1 Ho Chi Minh city, Vietnam No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank (vietnam) Limited.

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Thank you!

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