Vietnam Monitor (Issue 21)

Economics: Growth to weaken to 10-year low of 5.4% in 2009 but then recover on the back of lagged impact of rate cuts and large fiscal stimulus. Inflation to
collapse to 5% by mid-2009 and then gradually rise to long-term average of 11% by end-2010. Central bank to cuts rates by another 100bps in Q1 to 7.5%, which we think will be the bottom of the cycl Equity Strategy: Vietnam was the worst market in Asia in 2009, falling 69%. With no stocks over USD1bn, it has become uninvestible for mainstream foreign investors. Keys for 2009: restarting privatisations and more transparent earnings. Fixed Income Strategy: Balance of risks favour rebuilding positions in VGBs as positive bond fundamentals to continue, though potential further downside unlikely to be as brisk as in recent month. Higher VGB supply is likely to be absorbed by the market. FX Strategy: The authorities set the USD-VND midpoint 3% higher on 25 December. Better exchange rate regime management should keep the currency market more orderly and functional. However, continued gradual trend depreciation is still in order