VZCZCXRO0760
OO RUEHDT RUEHPB
DE RUEHHM #0125/01 0551107
ZNR UUUUU ZZH
O P 241107Z FEB 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5407
INFO RUCPDOC/USDOC WASHDC PRIORITY 0114
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHI/AMEMBASSY HANOI PRIORITY 3580
RUEHHM/AMCONSUL HO CHI MINH CITY 5643

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000125 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
USTR FOR BISBEE 
TREASURY FOR CHUN 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ETRD SOCI PGOV VM
SUBJECT: HCMC BANK AND FUND MANAGERS EXPECT INVESTMENT TO SLOW 
 
REF: HANOI 45 "VIETNAM: RESPONDING TO THE GLOBAL FINANCIAL CRISIS" 
 
HO CHI MIN 00000125  001.2 OF 002 
 
 
¶1. (SBU)  Summary.  Investment into Vietnam will slow 
significantly in 2009 as a result of the global economic 
downturn, according to Ho Chi Minh City financial sector 
analysts.  Virtually every corporate client is postponing or 
slowing implementation of their existing investment plans, 
multinational banks told us, but few are cancelling plans 
outright.  Financial sector analysts expect actual investment to 
be in the $5-7 billion range in 2009, down from $11.5 billion in 
2008 and well shy of the $10.5-13 billion that the GVN expects 
to draw.  Looking at foreign indirect investment (FII) flows, 
portfolio investors say they already adjusted their holdings 
during Vietnam's macroeconomic struggles in mid-2008, and will 
likely stay neutral in 2009.  While these investment inflows 
represent a significant drop from the blistering pace of the 
last few years, they are nonetheless relatively healthy figures 
that represent a return to the more modest pattern of capital 
flows typical of earlier years.  Analysts expect investment 
activity will pick up again once investors see signs of renewed 
consumer spending in the United States, Europe and Japan.  End 
summary. 
 
¶2. (SBU) In late January and early February,  HCMC and Hanoi 
EconOffs met a wide range of multinational banks, local banks, 
non-bank financial institutions, securities companies and 
investment funds in Ho Chi Minh City. 
 
FDI Flows Will Slow, Not Stop, in 2009 
-------------------------------------- 
¶3. (SBU) Most Ho Chi Minh City (HCMC) financial sector analysts 
are focused on foreign direct investment (FDI) as a key 
indicator of Vietnam's economic health in 2009 and expect 
between $5 and $7 billion USD in actual FDI flows this year. 
Even this amount would qualify as a success in current 
conditions, said a local investment fund manager, but it's 
possible because Vietnam continues to show long-term potential. 
Still, $5 to $7 billion USD falls short of the $10.5-13 billion 
the GVN expects to attract in 2009 (reftel).  One multinational 
corporate banking services provider stated that "almost every 
corporate customer will defer their 2009 investment plans in 
Vietnam."  Even high-profile projects that are near completion 
delayed their opening date, according to one large European 
bank, including the Paragon department store in Phu My Hung 
Company's "Saigon South". 
 
¶4. (SBU) Many were careful to draw a distinction between pledged 
investment (as announced in provincial investment licenses) and 
the amount of investment actually implemented.  The Vietnam 
General Statistics Office (GSO) says these were $60 billion and 
$11.5 billion respectively in 2008.  The GVN now forecasts that 
new investment commitments will go down by 67 percent to $20 
billion in 2009, and many of Vietnam's largest investment fund 
management companies believe that actual investment may drop 
even more.  "Looking back at the ten biggest FDI projects 
announced in 2008," the manager of an investment fund explained, 
"we'll be lucky if three actually happen -- real estate and 
steel, forget it.  Oil, maybe.  Some of the manufacturing 
investment will come through."  Other fund managers agreed, with 
one adding "the ten biggest projects account for 70 percent of 
the pledged FDI in 2008." 
 
¶5. (SBU) Fund managers told us that a few choice companies with 
solid domestic markets and cash on hand are investing now, 
because the cost of construction has gone down significantly 
("suppliers are tripping over each other to offer the lowest 
price on construction materials") and the Government of Vietnam 
(GVN) is quietly "becoming more helpful than they have been in 
recent years."  Labor and construction material are increasingly 
affordable, and fast-moving consumer goods production for the 
Vietnamese market in particular is still going strong.  Still, 
the same analysts point out that this kind of investment is 
financed by cash in Vietnam and will not draw additional dollars 
into the country. 
 
Portfolio Investors Look Hard for a Silver Lining 
--------------------------------------------- ---- 
¶6. (SBU) "There's nothing good to say about Vietnam's equity 
markets right now; there just isn't any money flowing in," said 
one fund manager.  He adds that a recent HSBC report 
recommending investors stay away from Vietnam has added to the 
current chill.  Even "optimistic" fund managers think it would 
take GVN intervention (e.g., official moves to prop up the Ho 
Chi Minh City Stock Exchange) to bring in any new foreign 
portfolio investors in 2009, and even then just $1-2 billion USD 
 
HO CHI MIN 00000125  002.2 OF 002 
 
 
might come.  "Vulture (investor)s " do still circle though HCMC 
looking for good investment opportunities, according to one 
banker, but transactions are happening.  "Vietnam is still a 
good long-term play, especially for western institutional 
investors with a long time line who don't expect to make money 
in the short or mid-term," another banker added.  Additional 
state-owned enterprise (SOE) equitisations and listings on the 
Ho Chi Minh City Stock Exchange (HoSE) would help renew interest 
in Vietnamese equities, said a number of securities firms, and 
it would be good for the economy, especially if it means less 
government support for SOEs like EVN, VinaCoMin and PetroVietnam. 
 
¶7. (SBU) Many of the investment funds prominent in Vietnam were 
humbled last year.  One of the biggest saw its net asset value 
drop 54 percent in 2008.  Their manager summed up that fund's 
situation as "not good, but better than most".  His fund still 
has cash on hand ($155 million) and is considering making 
acquisitions at a 30 to 50 percent discount from last year's 
inflated valuations.  Value of the HoSE is so low these days 
that anything a major player does affects the market, he added. 
Raising additional money is a challenge now, but the fund 
expects to be able to pull together another $500 million 
infrastructure fund and to cooperate with a U.S. investment bank 
to raise funds for a $500 million real estate fund. 
 
¶8. (SBU) Some small sectors are so underdeveloped in Vietnam 
that they continue to attract money.  For example, one 
technology venture capital fund remains optimistic.  The fund is 
looking to invest the rest of their $150 million technology fund 
and they also report getting positive feedback on a second $200 
million fund focused on middle-stage Vietnamese technology 
companies.  Japanese money, in particular, came into their fund 
late in 2008, according to the fund's public relations manager. 
The downturn is also helping the fund to be more active in 
streamlining the companies they've taken stakes in, "when the 
papers are full of layoffs it's easier to make cuts." 
 
That Signpost up Ahead 
---------------------- 
¶9. (SBU) Everyone we talked with was confident that Vietnam's 
economy will turn the corner when consumers in the United States 
and Europe begin to buy again.  Both Vietnamese and expatriates 
are thinking about a "summer dividing line" in June or July when 
the impact of the global downturn will become clearer.  If -- 
admittedly, a big if -- the U.S. economy show signs of recovery 
by summer, many firms indicate that they simply plan to hunker 
down and press through the rough spot in order to remained 
positioned for a post-recession recovery.  In this scenario 
exporters and investors say they will tough it out, and the 
impact (e.g., unemployment) will be negligible.  If, however, 
the summer comes with no signs of improvement -- or, worse yet, 
a deepening recession -- then they will be forced to revisit 
fundamental decisions about mid-term investment and operating 
plans. 
 
Comment: 
-------- 
¶10. (SBU) Looking back over the decade, the past two years saw a 
decidedly higher rate of investment than trend.  The FDI and FII 
levels our interlocutors predict fall more in line with the 
pre-2008 surge trend in investment.  The current economic 
downturn should be an opportunity for the GVN to use this pain 
to force through new reforms (e.g., a more independent central 
bank or accelerating the equitisation of SOEs), although as a 
prominent fund manager recently put it, "remember, the 
Vietnamese have a high threshold for pain."  End comment. 
 
¶11. (U) This cable was coordinated with Embassy Hanoi and the 
Regional Financial Attache in Singapore. 
DICKEY