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Dinh Vu

Economic Sector

Last updated: Friday, May 25, 2018


Consumption-driven Growth

Posted: Friday, March 17, 2017

Vietnam's economy and investors are looking forward to the growth of businesses from the consumption factor as the driver for growth of GDP in 2017. Dr Nguyen Xuan Thanh of Fulbright Programme said this is a good signal, but the future is set in the medium term.

According to Dr Nguyen Xuan Thanh, in the short term, growth drivers based on consumption cannot turn on fast. This largely depends on the middle-class disposable income, while income and the number of people in that class cannot soar.

"Difficult to squeeze investment"
In 2016, Vietnam's GDP growth was only 6.21 percent against the 6.7 percent target. The reasons are the decline in production, especially the decline of mining and agricultural industries. Growth in aggregate demand was also driven by lower consumption, which kept 2016 GDP below the target. In general, Dr Nguyen Xuan Thanh said that this is still a good signal compared to previous time, when the economy held the status of investment-based growth, but the investment efficiency is low so they have to squeeze investment to have growth". Currently the economy cannot "squeeze investment" in the old way anymore, because private and state investment is still entangled. The main reason comes from the bank's bad debt processing which has not been as expected. Therefore, GDP growth is mainly based on consumption.

"Consumption now contributes to national GDP at a higher rate, especially compared to the region. Remarkably, consumers also increase disposable income with high rates. Industries with high profit margins are processing and consumer services. This future will extend to the medium term rather than short term," Thanh said.
Statistics show that from 2010 to 2015, the share of household consumption in the GDP of Vietnam in comparison with other countries is about 65 percent, only lower than that of the US and higher than China, East Asian countries, Indonesia and India. With the rate of optimism and social life improving, the middle class rising, taking into account policy factors and growth from exports, overall, consumption is at the heart of GDP growth and the main point for investors to "bet".

Great opportunity for consumer sector
Nielsen announced that ending 2016, Vietnam has become the fifth country in global optimism, reaching 112 points (up 5 points from the previous quarter).

"Factors such as a large population, improved educational attainment as well as a strong development of the middle class and stable economic prospects of the government will continue to be the main drivers for Vietnam to become a more optimistic country than other countries in the region, "said Nguyen Huong Quynh, General Director of Nielsen Vietnam.

The spirit of optimism is spreading to consumer businesses with large domestic market share. It is noted that consumption is not narrow in fast-food consumption goods, said Winston Lu, analyst of Phu Hung Securities.

"The aviation service ranked 7th worldwide in terms of industry growth. Food and beverage, retail, healthcare and pharmaceuticals continued to grow at double digits. In particular, domestic consumption is increasing in food, beverages, information technology, making businesses in these areas become very attractive.” Lu said.

Money redirected to domestic consumption
On the stock market, aviation is a special industry with only two listed companies, one in Upcom and one in HoSE, but its appeal and influence is enormous. Shares of both companies are "burning floor" when opening to welcome investors.

It is known that Vietnam Airlines on Upcom recently signed an agreement with a strategic partner from Paris. Therefore, investment heat for big investors who want to join in this industry in 2017 will be focused on Vietjet, as it continues to plan for long-term strategic partners.

In the food and beverage segment, three companies held the top positions in the top 10 largest capitalized companies: Masan, Sabeco and Vinamilk, which hold the biggest share in beverages, spices and beer. In a special move since its launch in 2009, Masan shareholders have been given a cash dividend of 30 percent for the first time in 2016, in addition to issuing bonus shares at a rate of 50 percent. In parallel, Masan also asked shareholders to approve the issuance of 12 million shares to MRC Ltd at the price of VND95,000 per share and proposed to issue international bonds (non-convertible coupons) with a maximum value of no more than US$300 million. It is a new growth cycle of Masan in terms of cash flow for both business and long-term investment and in the eyes of investors, this move has made Masan shares more attractive. With a price range of VND40,000 per share to the end of February 2017, Masan is estimated to grow by 47 percent in 2017, excluding dividends (according to PHS).

Sabeco, with a price increase of over 100 percent in the short term since its launch, with sales and profits target in 2017 same as 2016, may still be an opportunity out of hand with respect to individual investors. But there is still plenty of space for strategic investors whose state owners are still screening.

Vinamilk is always the focus of investment that organizations put up strategies when the plan to divest SCIC shares is not complete. Vinamilk’s closing price at the end of February is VND131400/share; PHS target price is expected to increase by 23 percent, excluding dividends, to VND161,200 / share. According to statistics from HNX & HSX, in the first 2 months of 2017, in terms of Top 10 foreign investors, Vinamilk is leading the whole market.


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