GENERAL ANALYSIS
World situation
In 2018, major economies including the United States, China, Europe, and Japan experienced notable growth, contributing to global prosperity despite escalating tensions, particularly the US-China trade war, which complicated the economic landscape The US maintained steady growth, driven by effective tax cuts that stimulated investment, while Europe saw a positive growth rate of 2.4%, fueled by increased household consumption and fixed investment across EU countries Japan's economy grew by 1.8%, bolstered by rising international trade, although personal consumption slowed in the latter half of the year China's GDP growth reached 6.8%, surpassing expectations due to a robust recovery in manufacturing and exports, though the real estate sector faced challenges from government price controls, leading to a projected economic growth of 6.6% for the year.
Table 1: GDP growth in the period of 2018-2019 (%)
Table 2 The inflation rate for 2018 and 2019
In 2019, the inflation rates of various countries and the global inflation rate exhibited a slight increase, indicating a potential end to a prolonged period of inflation.
Table 3: Public debt to GDP
In the period 2018 - 2019, the data shows that the worldwide public debt tends to increase In many countries, the debt has exceeded the safe level
Unstable oil prices, driven by increasing instability in the Middle East, alongside the challenges of climate change and the ongoing fourth industrial revolution, are significantly transforming production structures This dynamic environment is causing notable fluctuations across various industries and trades, ultimately accelerating the evolution of economic models.
Besides, the rise of protectionism and trade tensions, has had an unfavorable impact on the development and linkage of the world economy, especially the trade war between the
The growth of Viet Nam
Table 4: The growth of Viet Nam
In 2018, Vietnam's economy achieved remarkable growth, with a GDP growth rate of 6.81%, surpassing the government's target of 6.7% and marking the highest rate since the 2007-2008 global financial crisis This success was driven by a robust economy in the latter half of the year, with growth exceeding 7% in both the third and fourth quarters Favorable domestic conditions, including low inflation and rising real wages, bolstered high domestic demand and private consumption The expansion of the manufacturing and processing sectors, alongside improved investment and business environments, contributed significantly to this growth Additionally, the agriculture, forestry, and fishery sectors showed clear progress, while the service sector grew by 7.03% in 2019, remaining strong despite a slight decline from the previous year's 7.44%.
The implementation of a tight and flexible monetary policy, along with coordinated fiscal, trade, and investment strategies, effectively controlled inflation, keeping it below the 4% target In December 2018, basic inflation rose by 0.11% from the previous month and 1.29% compared to December 2016, with the highest price increase observed in the medicine and medical services sector at 2.55% Additionally, adjustments in kerosene, electricity, and water prices, coupled with year-end housing repairs, contributed to these changes The average annual inflation rate for 2018 was 1.41%, reflecting a stable economic trend However, inflation in 2019 is expected to face upward pressure from public service price adjustments and food prices, with public service prices continuing to rise according to the 2017-2021 schedule, likely contributing to an overall inflation rate of 2-2.5%.
In 2019, the average deposit interest rate rose from 5.11% in 2017 to 5.25% per year, while the average lending rate increased slightly to 8.91% This upward trend in interest rates is primarily driven by heightened inflation expectations amid fluctuating global commodity prices, alongside credit institutions restructuring capital to maintain safety ratios Notably, the capital ratio for short, medium, and long-term loans decreased to 40%, with plans to boost Tier 2 capital in accordance with Basel II regulations Additionally, the USD/VND exchange rate experienced a modest increase, with the central exchange rate up by 1.5%, commercial bank rates rising by 2.8%, and the free market rate climbing by 3.5% since the start of the year.
The major economies as Vietnam's leading partners continue to grow positively, the recovery of basic commodity prices in the world positively affects growth, export, and budget collection
Stable domestic inflation, a favorable macroeconomic environment, enhanced business investment conditions, administrative reforms, and a clear legal framework are essential elements that foster private investment, promote entrepreneurship, and attract foreign capital.
To enhance the growth of sustainable markets, it is essential to advocate for new free trade agreements, encourage domestic reforms, and establish conditions that enable enterprises to engage more effectively in the global value chain.
In the cycle of economic recovery after the global financial crisis, Vietnam's economy has risen strongly from the driving force from the sustainable growth of consumer and consumer sectors
Oil prices have increased risks
Managing exchange rates steadily and lowering lending interest rates when feasible, in line with government policy, presents a significant challenge in the current global financial market.
In 2018, the Vietnamese banking system demonstrated stability, marked by moderate credit growth However, potential risks to this stability, particularly from non-production loans in high-end real estate, consumer loans, and the black credit market, necessitate careful monitoring.
Macroeconomics has fostered a stable environment for the banking system, marked by the highest GDP growth since 2012, a well-managed inflation rate, and positive foreign inflows from trade and overseas remittances.
As Vietnam approaches 2020, the government is accelerating its financial system restructuring through various regulatory changes This 2019 Banking Report offers the latest industry updates, along with local insights and analyses, to highlight the distinct opportunities and challenges within the Vietnamese banking sector.
Credit growth has slowed down to 14% at YE2018 from 18% at YE2017
In 2018, credit experienced a modest year-on-year growth of 14%, following three years of significant increases, with similar targets set for 2019 Capital adequacy requirements are crucial in regulating this growth, as banks must meet Basel II capital adequacy ratio standards before 2020 to pursue higher credit expansion Furthermore, the State Bank of Vietnam (SBV) has intensified its oversight of the real estate and consumer finance sectors.
The consumer finance market, a key growth driver in recent years, is experiencing a slowdown due to market maturity, heightened competition among banks and finance companies, and proposed amendments aimed at restricting housing and cash loans.
In line with the SBV’s priority to improve credit quality and reduce bad debts, reported
In 2018, Vietnam's non-performing loans (NPL) decreased to 1.91% from 1.99% in 2017, attributed to low credit growth and the latent nature of NPLs The country has made significant strides in addressing bad debt, largely due to the efforts of the Vietnam Asset Management Company (VAMC) and the successful implementation of Resolution 42 From 2012 to Q1 2019, approximately VND 907,300 billion (USD 39.02 billion) in bad debt was resolved, with 25% of this progress credited to Resolution 42's impact.
Undercapitalization continued to be a pressing issue for banks when currently reported CAR dropped slightly to 12.14% in 2018
Despite modest credit growth, the banking system has seen a decline in Capital Adequacy Ratio (CAR) Most banks have not yet achieved their capital raising goals, with only eight banks—TCB, VIB, ACB, VPB, VCB, OCB, MBB, and TPB—meeting Basel II CAR standards by the first half of 2019.
Banks showed strong profitability performance
Although 2018 recorded NIM at only 2.8%, lower than the two previous years, overall profitability including fees and non-interest income showed an uptick, in line with the sector’s development plan.
Banks are required to list on the stock market by 2020
As announced by Decision 242/QĐ-TTg on Restructuring the Stock and Insurance Markets by 2020 with a vision to 2025, all local commercial banks must be listed by
In 2020, banks are under pressure to list in order to address undercapitalization issues Larger banks with strong retail banking operations and solid fundamental performance stand to gain the most from going public during this period However, a significant challenge remains, as these banks must present a compelling growth narrative to capture the interest of foreign investors.
Little M&A activities have been recorded since 2H2018 and 1H2019
By 1H2019, there remains 45 commercial banks in total – 4 SOCBs, 31 JSCBs, 1 JV and
The Vietnamese government is committed to consolidating the banking sector by halting the issuance of new licenses to foreign banks and promoting strategic investors to acquire 100% of zero-VND banks or purchase shares in existing banks However, challenges related to foreign ownership limits (FOL), minority stakes for strategic investors, and the costs associated with addressing existing bad assets have resulted in minimal mergers and acquisitions (M&A) activity from the second half of 2018 to the first half of 2019.
Vietnam plans to speed up restructuring with multiple regulatory changes throughout the financial system
COMPANY ANALYSIS
BUIDING PORTFOLIO (Chưa done)
Collecting the datas
Collecting the datas of two stocks from 2/1/2018 to 30/8/2019
Using the website [cophieu68.vn](http://www.cophieu68.vn/), historical data for two stocks, CCL and EIB, along with the VNINDEX, was gathered from January 2, 2018, to August 30, 2019 This data includes the historical closing prices necessary for analysis **Analysis Methodology**The analysis was conducted based on the specified equation utilizing the collected historical closing prices to derive insights on stock performance and market trends **Results Summary**The results indicate variations in stock prices and market indices during the specified period, reflecting the overall market dynamics and the performance of CCL and EIB in relation to the VNINDEX.
Belong to two stocks, we estimated the daily rate of return
Date Price CCL Price EIB VNindex
Caculating the expected return of two stocks and the VNindex
We have formula to determine expected rate of return of assets:
: Rate of return of stock in t
Apply formula and information of stock and VN index in our stock markets, we can calculate data as follow table below
CCL and EIB stocks are projected to deliver positive returns that exceed those of VN, making them attractive options for investors looking to enhance their portfolios However, the profitability of combining these two assets compared to the overall market remains uncertain.
With : Correlation of each stock
Standard deviation is a key indicator of investment volatility, with higher values signifying greater risk For instance, CCL has a standard deviation of 2.851080%, while EIB stands at 1.949830%, both exceeding the standard deviation of the VNI index This indicates that the risk associated with CCL and EIB stocks is significantly higher than that of the overall market.
Covariance and correlation coefficients of CCL and EIB:
The covariance of two stocks is calculated by this formula:
, : Rate of return at period t of stock CCL, EIB
E() , E() : The expected rate of return on stock
The correlation between two stock is calculated by this formula:
: the covariance between CCL, EIB
: the standard deviation of CCL, EIB
When the covariance and correlation coefficient between two securities are positive, it indicates that their yields tend to move in the same direction over time A correlation value less than one signifies a linear relationship where both securities experience similar increases or decreases in their average values.
The minimum variance frontier and the efficient frontier a Minimum variance frontier:
To address these challenges, we will construct optimal portfolios that maximize expected returns for a specified level of risk, utilizing Markowitz's Modern Portfolio Theory.
Step 1: Set up equations of proportion of funds in CCL, EIB Then, calculate the expected rate of return, variance, standard deviation according to available data
Portfolio standard deviation by the square root of portfolio variance
-Step2: Using Microsoft Excel to draw the minimum variance frontier
A minimum variance portfolio is designed to minimize overall price volatility by strategically combining various securities According to Markowitz portfolio theory, this concept is illustrated on a chart known as the efficient frontier, which represents portfolios that achieve the lowest volatility for a given level of expected return.
Finding the portfolio which has the least standard deviation through the equation:
E(Rρ) = WAE(RA) + WBE(RB) б 2 p = WA 2 бA 2 + WB 2 бB 2 + 2WAWBCov(RA,RB) бp =
In which: σ 12 is the Covariance of two stocks CCL and EIB So, we define this table:
Portfolio has the least standard deviation
If you had 100 million dong, how would you invest?
With a risk-free rate of 2.2003%, investing 100 million dong in an optimal portfolio can enhance investor utility Following Markowitz's principles, we aim to maximize utility to achieve higher profits, selecting a portfolio that aligns with these goals.
Capital allocation line is the tangent of Utility curve
6.1 Determine sharp ratio of CAL
The Capital Allocation Line (CAL) represents the tangent of the Utility curve at the point where the Sharpe ratio is maximized To achieve this optimal Sharpe ratio, we can utilize the Solver tool in Excel, similar to the approach used for determining the global minimum variance portfolio.
Set up equation of , , , according to
Solve, and then we can find the highest sharp ratio at = 0.90895873, 0.17411711%, 0.1849% with = 55.5%, = 44.5%
Table 5.5 The sharp ratio of CAL between CCL and EIB
Expect ed return Var STD weig ht E(Rp) ϭp Sp max
6.2 Determine proportion of risk-free assets in portfolio
Use Utility function: U = in order to allocate capital for portfolio (risky and risk-free assets)
Expected return of combinations portfolio (risky and risk-free asset)
Risk-free assets are assets that yield a certain expected return Thus, the standard deviation of the return on risk-free assets is zero Variance on the possible combined portfolios
U We decide to allocate our money investment so that the last dollar spent on each product purchased yields the same amount of extra marginal utility
We can maximize Utility when U’ = 0, we have
Use data from CAL max, we can calculate proportion of risk-free assets in combined portfolio, value of Utility, variance and expected returns for combinations follow table
Table 5.6 the rick free on portfolio COMBINED PORTFOLIO
Weighted of investing risky assets Y 98%
Weighted of investing risk-free asset 1 – y 2%
Variance on the possible combined portfolio
6.3 Determine capital allocation for combined portfolio
If we have 100 million VND we will invest:
Proportion of risky assets (P) Wp = y = 98%
Table 5.7 the capital allocation for combined portfolio between CCL and EIB
Assets in portfolio Weight of assets
With the proportion of portfolio and have 100 million dong, we will invest combined portfolio (C)
We will take a lender with risk free rate is 2.2003% with amount 1,674,689 dong in order to invest risky asset with CCL is 54,570,547 dong and EIB is 43,754,763 dong.
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Analyzing financial status of two companies
http://fiinresearch.vn/Reports/17DC2-vietnam-banking-report-2019-.html
https://www.imf.org/~/media/Files/Publications/WEO/2019/October/English/text. ashx
https://countryeconomy.com/gdp/vietnam