Wood Market Picks Up Speed in Vietnam

 

Wood Market Picks Up Speed
By Pham Quang Dieu & Nguyen Quoc Chinh
Thursday, October 29,2009,16:21 (GMT+7)

 

After a long period of robust growth, Vietnam’s wood export revenue plunged by nearly 10% for the first time. However, wood export has posted encouraging month-on-month performance, which has shown signs of recovery.

 

Currently, over 80% of the timber used to make wood products in Vietnam is imported, which spells trouble for the country’s wood export. In 2007 and 2008, Vietnam imported an average of 3.5 million cubic meters of timber annually, with sawn timber taking a lion’s share (2.28 million cubic meters, or 65%). This translates into over US$1 billion worth of imported timber, which caters mainly to the wood export sector.

 

Meanwhile, global demand, especially from main markets such as the U.S., Japan and Germany, exerts a tremendous influence on Vietnam’s wood export revenue. Since 2000, rising demand from these markets have boded well for Vietnam’s wood export earnings. In the first five months of 2009, orders from these markets plummeted year-on-year, Vietnam’s wood export ran into serious trouble. Wood export to the U.S., Germany and Japan nosedived by 37.23%, 18.3% and 17.17% respectively. Therefore, despite enormous efforts, Vietnam’s wood export generated merely US$982 million, down 10.4%.

 

Vietnam’s wood export hinges substantially on seasonal factors as wood processing entails several phases. 

• It takes three to four months to purchase timber and process it to meet orders. As these orders are usually placed in the first eight months of a year, the last four months often see export revenue peak.
• Figures from 2007 and 2008 showed that wood export earnings in the last four months were 12.57% higher than in the previous four months and 17.81% higher than in the first four months.
• Although the global financial crisis adversely affected wood export in late 2008, export value in the last four months were still 11.6% higher than in the previous four months and 21.07% higher than in the first four months.

Moreover, wood export policies implemented by Vietnam and wood-importing countries also play a part. For instance, in June 2008, the U.S. Congress passed the Farm Bill with stringent regulations on the origin of wood products imported into this country. In April 2009, the Lacey Bill on the origin of foreign wood and wood products in the U.S. also came into effect and imposed more challenges as the timber which Vietnam purchases from Myanmar, Laos and Cambodia is often of dubious origin.

 

On September 23, 2008, the Ministry of Finance isssued Official Letter 11270/BTC-CST to impose export taxes on products made of imported materials. Consequently, wood exporters saw export taxes rising from 0% to 10% and encountered numerous problems as wood export is most robust in the last four months of a year. Fortunately, in view of such trouble, the ministry issued Official Letter 965/BTC-CST dated January 21, 2009, which allowed those which had paid the taxes to get refunds and removed the 10% export tax on wood exports. The decision was immensely beneficial to wood exporters.

 

Signs of recovery

 

The third-quarter report on Vietnam’s wood export and prospects said that two factors which left profound impacts on this activity were

• imported materials and
• demand from main export markets.

 

In March 2009, global timber prices rose slightly while Vietnam’s timber import started inching up thanks to increasing numbers of orders. Problems in the forex markets were also tackled, so enterprises no longer worried about the shortage of foreign currencies used for purchasing timber. In May 2009, the U.S. economy also showed signs of recovery, and the housing market warmed up. Encouraging signals also emerged in Japan and Europe in July and August 2009. Therefore, Vietnam’s export revenue has fared better and posted month-on-month increase since May. At present, wood processing enterprises have received many orders. These indicate that Vietnam’s wood processing sector is on the path to recovery.

 

As a result, AGROINFO predicts that export prices for Vietnam’s wood products will follow global trends and fall by some 11.94% year-on-year. However, since demand for them from main markets has seemed to recover and the wood export sector has entered the peak season, it may reap revenue of US$2.8 billion in 2009, comparable to that in 2008.

 

 

http://english.thesaigontimes.vn/Home/business/trade/7196/

Vietnam is a clever way to play Asia

Vietnam is a clever way to play Asia

Imagine the amount of money you would have made if you had started investing in China 10 years before the hot money started to flow. Your profits would have been absolutely phenomenal – even after the correction over the last two years.

By Garry White
Published: 5:41PM BST 12 Sep 2009

VinaCapital Vietnam Opportunities Fund

$1.71 +0.01

Questor says BUY

For investors keen on getting in ahead of the crowd, Vietnam could offer you a similar opportunity today.

For the 10 years before the credit crunch hit, Vietnam was Asia's second-fastest growing economy after China. The country tabled an average growth in GDP of 7.5pc a year. This year's government target is 5pc.

The country was hit hard by the financial crisis, but it has now started to recover – and a return to stellar growth in the next few years is very likely. Questor urges investors to buy into Vietnam now, while it is still cheap.

The country certainly has a lot going for it. It has one of the highest literacy rates in Asia, at 90pc, and the workforce is young, hard-working and optimistic.

Almost two-thirds of Vietnam's 85m people are under the age of 35 – and this should support economic growth over the medium term. A young population implies significant population growth in the future, which should stimulate demand further.

Significantly, labour in the country is even cheaper than in China, which should underpin investment in areas such as manufacturing.

A good example of the attractiveness of Vietnam was seen last week when Coca-Cola said it planned to double its investment in the country to $400m over the next three years. The company did not didn't send a minor representative to make this announcement; Muhtar Kent, Coke's chairman and chief executive, went to the country personally.

Arguably, Vietnam is now in the same position as China was a decade ago, but there are limited ways that a UK investor can invest in this fledgling economy.

The Vietnam Opportunity Fund (LSE: VOF), which is managed by country specialist VinaCapital, is one of the easiest ways for UK investors to play growth in the Asian nation.

The shares peaked at $4.78 in 2007, but the sharp risk aversion that gripped the markets means the shares have plunged significantly. They hit a low of 65 cents in December last year, but have since more than doubled to the current level.

The fund's mandate is to invest at least 70pc of its cash in Vietnam, with the remaining 30pc in China, Cambodia and Laos.

Its managers target medium to long-term capital gains with some recurring income and short-term profit taking – which appears to be a sensible strategy. The fund will invest in private companies, not just listed entities, as well as taking part in any privatisations the government proposes.

The largest portfolio constituent of this open-ended investment trust, at 7.6pc, is financial group Eximbank. It also has major holdings in HPG, a steel manufacturer, dairy group VNM, real estate group DI and fertiliser group DPM.

As of August 31, Vietnam Opportunity Fund's net asset value per share was $2.44 – up 12.2pc in just one month.

The shares can be bought as normal through your broker and the investment trust is priced in dollars. For investors seeking substantial long-term capital growth, Questor recommends an investment in this Asian market, as it is not fully recovered from the recent plunge and should return to significant growth soon. Shares in the Vietnam Opportunity Fund are a buy.


Catlin

332.8p +2.60

Questor says BUY

Lloyd's of London insurers had a good first half of the year and Catlin, the largest syndicate in the market, was no exception. The group posted a record half-year profit of $240m (£143m) as investment returns more than tripled.

In February, Questor recommended buying the shares, despite the insurer falling into the red. The group was one of many that needed a rights issue – and £200m was raised at a hefty 47pc discount. The cash call was sensible, as the company could invest in its business.

Insurance premiums had started to rise, as underwriters tried to rebuild their balance sheets following an active hurricane season in 2008 and heavy investment losses.

Since this time, market conditions have continued to improve and insurers including Amlin, Chaucer and Hiscox have benefited as returns from hedge funds and equities begin to improve. With a market capitalisation of more than £1bn, Catlin was always going to be well positioned to seize these fertile market conditions.

The company now covers about 30 different types of risks and has an international network in 17 countries across five continents.

Although short-term risks hang over the Lloyd's market – including the onset of the Atlantic hurricane season – Questor believes Catlin shares are worth buying for their impressive yield, despite the shares being 10pc below their recommendation price.

The shares are currently yielding 7.2pc and the stance remains buy.


Cisco Systems

$23.12 +0.03

Questor says TAKE PROFITS

Shares in networking group Cisco were recommended in January at $16.91. Questor argued that the group's earnings would be supported by the US stimulus package, which aimed to connect many US schools to the internet.

The recent market rally means that the shares have risen by 36pc since that time. Questor thinks that the shares are now looking fully valued and are likely to mark time from here.

After this year's recovery, they are trading on a July 2010 earnings multiple of 17.5 times which, given the fragility of the recovery, looks like a fair rating.

Although global stock markets have rallied significantly, unemployment remains a major problem in Western economies. This means that the recovery could easily be derailed.

Indeed, the gold price crossed the $1,000 barrier last week, which is potentially a warning sign of a return of risk aversion, although it could just be a function of the weakening dollar.

Nevertheless, gold tends to outperform at times of crisis, so the latest popularity of the metal is a sign of investor concern that the market has risen too far too fast.

Investors do not go broke taking profits and, with worries over dollar weakness starting to gather pace, Questor thinks now is a good time to take profits in Cisco and sell.


http://www.telegraph.co.uk/finance/markets/questor/6179041/Vietnam-is-a-clever-way-to-play-Asia.html