Macro Report

The index of industrial production (IIP) in Feb 2020, while experiencing moderate single digit expansion, increased by only 6.2% YoY (compared to +13.7% YoY and 9.2% YoY in Feb 2018 & Feb 2019). In detail, the IIP of the manufacturing sector increased by +7.4% YoY, while the electricity production and distribution IIP metric increased by +8.4% YoY. These figures were both lower than the same period of 2019 of +11.4% YoY and +9.3% YoY. High inter-connectivity with China in term of input material reliance, together with slower domestic consumption due to Covid-19, has combined to strongly influence industrial production.

4Q19 GDP increased by 6.97% YoY, lower than 3Q19 (7.48% YoY) and the first nine months of 2019 (7.04% YoY). The slowed down 4Q19 GDP was mainly stemmed from two sectors of Agriculture and Industry while Construction and Services lifted overall growth. In particular, the GDP of Agriculture (-0.06% YoY) and Industry (+7.92% YoY) in 4Q18 were the lowest level for many years. In contrast, the GDP of Construction (+10.32% YoY) and Services (+8.09% YoY) were the highest level for many years.

The Index of Industrial Production (IIP) in November increased by 5.4% YoY, marking the lowest increase in 34 months and only about half of the increase recorded in the first ten months of 2019, at 9.5% YoY. The sharp decline in November IIP came from a blend of factors. IIP of the mining sector decreased by -5.3% YoY in November, while having increased 1.2% YoY in the first ten months of 2019, whereas the IIP of the manufacturing industry increased low by 6.5% YoY (+10.8% YoY in the first ten months of 2019).

Due to the decrease in reserves, oil and gas exploitation was expected to steadily decrease by about 10% per year until 2025, so it is not surprising that the IIP metric tracking crude oil and natural gas exploitation in November decreased by -10.4% YoY (for the first ten months of 2019: - 2.5% YoY). The IIP of coal mining in November increased slowly by 6.6% YoY, while increased by 12.2% YoY in the first ten months of 2019. The slowdown of coal mining is seasonal due to cool weather, along with increasingly more hydroelectricity production. In November 2018, coal mining IIP decreased by -1.8% (for the first ten months of 2018: + 10.7%).

The index of industrial production (IIP) of Manufacturing remained flat thanks to the improvement of the Electronics sector but many other sectors of Manufacturing slowed down. The IIP of Motor vehicles in October decreased by 3.2% YoY, the lowest growth rate in twenty months (while imports of automobiles increased). For the first ten months of 2019, the IIP of Motor vehicles increased by only 7.6% YoY (the same period last year increased by 15.8% YoY). Protectionist trade policies for domestic production, including automobile production, likely has not brought a clear effect yet. In the context of difficult condition of commodity exports, in order to attain growth, it is necessary to actively protect domestic enterprises, especially Vietnamese private enterprises, to give them a chance to survive.

Damages to the Chinese economy in the confrontation with the US became more evident, such as a lower than expected index of industrial production (IIP), retail sales, and weak credit growth. The Chinese Prime Minister also admitted that it would be difficult for the 2019 economic growth to achieve 6%. To avoid a gloomy national holiday, China suspended tariffs of 16 US products which were subjected to 25% tax, sent a low-level delegation to Washington, and proposed to import soybeans and pork from the US. The two sides announced their resumption of high-level negotiations on October 10 to 11.

GDP in 3Q2019 increased by 7.31% YoY, the highest increase in three quarters (1Q2019 and 2Q2019 increased by 6.82% and 6.71% YoY, respectively) and higher than 3Q2018 (+6.82% YoY). GDP of the Manufacturing sector increased by 11.68% YoY. That, along with the +4.5% YoY of Mining sector, offset the negative growth of -0.08% YoY in Agriculture. Cumulatively, for the first nine months of 2019, total GDP growth reached +6.98% YoY, equal to the first nine months of 2018 and higher than the 2019 target of 6.6-6.8%.

The focus of August was the escalating “eye for an eye” measures between the US and China. After a calming month, the trade war was reinitiated when Donald Trump declared to raise the tariffs for remaining 300 billion USD of Chinese goods starting from September 1^st. This time, in addition to retaliatory tariffs, the People’s Bank of China (PBOC) also took action to raise its reference exchange rate and let the CNY depreciate past 7.0 CNY/USD – the psychological support level representing the good will of China in trade talks with the US. Despite being named as a currency manipulator by the US, the PBOC kept depreciating its domestic currency. The CNY had its worst decline by month in the past 25 years. In particular, the reference rate USDCNY surged from 6.8841 to 7.0879, or a 3% MoM increase. The spot exchange rate leapt from 6.8842 to 7.1567, or an increase of 3.96% MoM and 4.04% YTD.

Generally, corporate bond coupon rates were in the safety zone, approximately equal to the lending rates of banks. Nevertheless, without a reliable credit rating institution, it would be difficulty for bond buyers, especially for individual investors, to determine a reasonable coupon rate. When policies regarding the issuance of corporate bonds become more flexible, investor protection mechanisms must also be more completed. It would be the foundation for a strong and sustainable corporate bond market.

The 2^nd interruption of the US-China trade war was prolonged for a month in July, unlike the first time (5 months). In July, the change in money supply was mainly driven by economic information and the central banks, especially the Fed.

The positive economic data from the employment report in June, 2Q19 GDP, and the trade deficit all showed that the US economy was still quite stable, especially compared to economies of the EU. The PMI of the EU in July was at 46.4, marking 12 consecutive months of decline. Therefore, although the Fed had reduced the interest rate by 25bps, as expected, the USD increased strongly in July. The DXY index increased from 96.1 to 98.5. All six currencies used by the index decreased. Among them, the largest decline was the GBP (-4.21%). The remaining currencies, EUR, JPY, CAD, SEK, and CHF decreased by 2.58%, 0.82%, 0.73%, 4.18% and 1.81%, relatively, compared to the end of June. 

The IIP of the Mining sector increased by 4.4% YoY, the highest level in 18 months. The Mining sector continued to be supported by Coal and ore mining while the exploration of Oil and gas still contracted. The Coal mining index increased sharply by 28.3% while ore exploitation remained strong, + 20% YoY, oil and gas decreased by 1.3%.

The IIP of Manufacturing dropped for the 3rd consecutive month because the Electronics sector could not recover to compensate for the loss of Petroleum refining. The IIP of Petroleum refining in July increased by only 3.9% YoY (compared to the +86% average for the first five months of 2019 and -13.5% YoY in June). The Electronics sector increased slightly, +2.7% YoY, the lowest in three months.

Exports showed a recovery to 9.6% YoY in 2Q2019, from an increase of 5.3% YoY in 1Q2019, rising to 7.2% YoY in 1H2019. However, it was still quite low compared to 2Q2018 of 16.9% YoY and only higher than 1H2016 of 5.6% YoY for the last 10 years.

The lower growth of the FDI sector was still the main reason for the slowdown in exports. This sector only increased by 5.5% YoY in 1H2019 compared to the increase of 12% YoY of the domestic sector.

Imports also showed a similar trend but had a higher growth rate compared to exports. Imports were up 8.9% YoY, of which the FDI sector increased by 6.5% YoY and domestic sectors increased by 12.2% YoY.

In 1H2019, exports reached 122.5 billion USD and imports reached 120.9 billion USD in value. The trade surplus was 1.59 billion USD.