|Michael Kokalari, chief economist of VinaCapital |
The number of COVID-19 deaths in Ho Chi Minh City has surged since late July, and over 80 per cent of Vietnam’s recent cases are in the greater Ho Chi Minh City area, so stricter measures were inevitable.
One silver lining is the recent introduction of more objective criteria by which COVID-19 risk is assessed, which in turn should enable an orderly reopening of the city in steps, as various public health objectives are met.
The imposition of stricter measures in Ho Chi Minh City was widely publicised by the international press, which reported that the Vietnamese government would close the city’s supermarkets and task the army with distributing food to the city’s inhabitants during the strict two-week lockdown.
The latter captured considerable attention as few countries have enlisted military assistance to combat the pandemic, but in addition to delivering food, the military is also supplementing public health-related missions, including manning 10 mobile testing stations.
Each of Ho Chi Minh City’s 312 wards now has a risk rating based on empirical criteria, including the number and nature of COVID-19 cases in that area. Red zones have very high risk, while orange zones are deemed to have high risk and yellow and green zones have modest risk levels.
The degree of restrictions in a specific geographic area is related to its COVID risk rating.
There are about 3,000 supermarkets in Ho Chi Minh City that remain open, according to local media sources, and we visited several in recent days to get a clearer understanding of the number of customers still physically shopping at grocery stores, and the extent of the operations to deliver groceries to people’s homes.
All the stores we visited had re-stocked their shelves following a weekend rush to buy food supplies, which occurred in the lead-up to tighter social distancing measures implemented on August 23. Pictures of empty supermarket shelves were published in the news at the start of the week.
We also witnessed very impressive “picking and packing” operations reminiscent of an Amazon warehouse, with supermarket workers filling bags of groceries for delivery to households (interestingly, state-owned enterprise Co.op Mart has a very efficient home delivery operation).
We also visited a few impromptu, street-side vegetable markets that have popped up recently, and witnessed a steady stream of motorbike deliverymen coming and going from those small markets.
Many factories located in the industrial suburbs of Ho Chi Minh City continue to operate, albeit at reduced capacity. We are monitoring some unorthodox indicators of industrial activity at factories that produce high-value products, inspired by hedge funds’ use of unorthodox data, such as satellite imagery of Walmart parking lots.
From early July, we observed many buses transporting workers back-and-forth between hotels in central Ho Chi Minh City and the factories located in Vietnam’s industrial suburbs. A fortnight or so ago, we did not see a noticeable drop in the number of buses transporting workers.
The buses currently being used to transport workers typically have signs in the windshield indicating the company they are ferrying workers to in the morning, including Panasonic, Sanyo, and Samsung, as well as which hotel they are transporting workers to in the evening. The buses drop workers at several hotels in downtown Ho Chi Minh City, and we have also been closely monitoring the visible occupancy of a few centrally-located hotels since the pandemic emerged.
Prior to early July, those hotels appeared to have few rooms occupied every day (meaning room lights were on in just a couple of rooms in the evening).
In early July, when stricter social distancing measures in Ho Chi Minh City were introduced, the occupancy rate of those hotels appeared to increase to 20 per cent, because businesses reportedly housed more of their middle-managers in hotels. One Intel spokesperson said the company is spending $6 million a month on housing its workers, as well as other pandemic remediation measures.
A couple of weeks ago, the occupancy rate of those hotels appeared to have shot up to over 70 per cent, apparently motivated by the imposition of stricter social distancing measures in greater Ho Chi Minh City.
Slower GDP growth
Major foreign-invested enterprises can afford to house employees at hotels and/or take other mitigation steps, but the profit margins of businesses that produce low value-added products such as garments and furniture are much lower than those of consumer electronics manufacturers.
Consequently, companies producing garments, shoes, and other low-margin products are having a hard time maintaining their production, and Vietnam’s exports of such products plunged in August, according to data from the General Department of Vietnam Customs. This drop will drag on Vietnam’s GDP growth, as will a drop in personal mobility in Ho Chi Minh City to levels far below those during the first COVID-19 wave in April 2020, which will impede domestic consumption.
Given all of that, the consensus forecast for 2021 GDP growth fell from around 6 per cent a few weeks ago to about 4.5 per cent, but those consensus forecasts are probably too optimistic.
We are currently revising our GDP growth forecast and note that our forecasts have consistently been below and more accurate than the consensus. We also believe that the consensus expectations for 38 per cent in earning per share growth in 2021 are too optimistic. That said, earnings should rebound vigorously next year, so we caution investors not to play the “market timing” game by selling Vietnamese stocks now and attempting to time their re-entry to the market.
Controlling the situation
The government aims to have Ho Chi Minh City’s current pandemic issues “under control” by September 15, by which it means 20 per cent reduction in the daily number of related deaths; 20 per cent reduction in the number of hospitalised COVID-19 patients in critical condition; and new daily hospitalisations being less than the number of COVID-19 patients discharged from the hospital each day.
The government is currently conducting a mass testing programme and targets 70 per cent of Ho Chi Minh City’s adult population to get the first dose of a vaccine by September 15, up from less than 20 per cent who received at least one shot in late July.
The government is prioritising vaccinating people in the greater Ho Chi Minh City area, given the region’s economic importance as it, together with the industrial suburbs of Binh Duong, Dong Nai, and Long An account for over one-third of the country’s GDP. Note that the proportion of Vietnam’s adults who received at least one dose of a vaccine increased from less than 5 per cent in late July to more than 15 per cent a fortnight ago.
A surge in Ho Chi Minh City’s Delta variant cases prompted a tightening of social distancing measures, but the government’s strategy now incorporates objective criteria to assess risk in individual neighbourhoods, which should make it easier to roll back the current measures once certain public health milestones are met.