November 15, 2015
G-bond issuance tripled over a one-month period with the success ratio at its highest level since March. Of note, 5Y tenors constituted 88% of total uptake (up 250% MoM) and the market seems satisfied with yields tracking circa 6.6%.
G-backed bonds also enjoyed the best monthly performance so far this year as issuance over the one-month period exceeded one-fourth of the YTD figure.
Abundant liquidity in banking system was a major factor stirring up the bond market. The overnight interbank rate cooled off to the lowest level since May 2015 while T-Bill outstanding halved vs. the beginning of Oct.
The surge in bond issuance also comes amid the NA approval on re-issuing bonds with maturities of less than 5 years as financing the 2015 fiscal deficit becomes ever more urgent. We believe this will help ease concern on supply at the long end (especially 5Y tenor) and hence, yields of long tenors should steady towards year-end.
Activity on the secondary market was similar with turnover rising 31% compared to one month earlier. Shorter maturities received particularly strong interest, accounting for 95% of total trading – short-term yields fell and the yield curve steepened.
Inflation picked up slightly in October but on-year reading remained subdued. October CPI rose 0.11% vs. September as expected, fueled by foodstuff price hikes ahead of the wedding season. We reiterate our year-end forecast at 1%.
NA approve proposal to issue USD 3b int’l bond in 2015-2016, abating pressure on bond supply in the coming year. Bond proceeds will be used to rollover maturing bonds worth USD 4.6b in 2016 (vs. USD 5.3b in 2015) amid challenges in raising funds onshore and as the fiscal deficit is expected to reach USD 11.3b in 2016 (up 12% vs. 2015). Tenors will range from 10-30 years with yields subject to the international capital market conditions at the time of issuance.
Demand rebounded strongly on the primary bond market but yields fell only slightly. The marked improvement was thanks to the surge in 5Y tenor uptake. The Nov 4th auction concluded with the bid-to-offer ratio at 2.75x and winning yield had been pushed down to 6.53% before rebounding to 6.6% in the last two auctions. As such, the Treasury managed to raise VND 23.7t via bond auctions since Oct, nearly equal the total amount issued in 3Q15. Year-to-date issuance has fulfilled 49% of the full-year target of VND 250t.
Money market – the SBV remained idle. The central bank only injected a modest VND 348b on Nov 2 via reverse repo while stayed inactive for the rest of Oct and Nov as liquidity was ample signaled by an overnight interbank rate that hit the lowest levels since May. Meanwhile, outstanding T-Bills declined 48% since the beginning of Oct as the SBV only restarted issuance in the final week of Oct.
Forex market – After strengthening in Oct on the SBV’s stringent policies to reduce dollar hoarding, the Dong weakened 1% in the first two weeks of Nov as the FOMC meeting on Oct 27-28 all but confirmed rate hike in December. The USD traded at commercial banks is hovering at VND 22,470 (upper band VND 22,547) while the unofficial VND/USD rate has been trading at c.0.3% higher than the upper band.
VCSC Rating System & Valuation Methodology
Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as (target price – current price)/current price + dividend yield, and is not related to market performance. This structure applies from 27 May 2015.
|Equity rating key||Definition|
|BUY||Total stock return including dividends over next 12 months expected to exceed 20%|
|OUTPERFORM (O-PF)||Total stock return including dividends over next 12 months expected to be positive 10%-20%|
|MARKET PERFORM (M-PF)||Total stock return including dividends over next 12 months expected to be between negative 10% and positive 10%|
|UNDERPERFORM (U-PF)||Total stock return including dividends over next 12 months expected to be negative 10%-20%|
|SELL||Total stock return including dividends over next 12 months expected to be below negative 20%|
|NOT RATED||The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulation and/or firm policies in certain circumstances, including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company.|
|RATING SUSPENDED||A rating that happens when fundamental information is insufficient to determine an investment rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock.|
Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.
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