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Tony Milton MRICS

BSc (Hons) Est Man

Fast Facts

Date : Monday, 01 November 2010
Category : Yields


But first, a few words about “Property Risk Premium” : - Whether by academic teaching or human nature, investors seem predisposed to expect higher returns, on an absolute and a risk-adjusted basis from international investments than from investments in their own country. A valid question to ask, however, is whether or not the foreign risk premium is a myth or a reality. Conceptually, there is a problem with expecting a foreign risk premium. If all investors expect higher returns by virtue of investing outside of their own country it is not possible, or at the very least, is not sustainable. In theory, the efficiency of a global capital market dictates, that capital will flow to take advantage of opportunities where risk is being mispriced such that on a global basis, long-term risk-adjusted returns should converge. The form this convergence takes varies for the different categories of markets - core, core plus and emerging. Hence, for investors placing capital from one core market to another core market, the foreign risk premium is more myth than reality. However, in core plus and emerging markets, both the types and magnitude of risk are generally greater, sometimes much greater than in core markets. Because risks in these markets may come from a number of sources - market size, currency, political risks, etc - investors from core countries should expect higher absolute returns from investments in core plus and emerging market countries. However, on a risk-adjusted basis, if the risk has been appropriately priced then the risk-adjusted returns should still be similar. Thus, in core plus, and emerging market countries, there may be a foreign risk premium on an absolute basis, but little or no premium on a risk adjusted basis, over the long-term. For example, to develop the risk premium for a country, the following assumptions are made : -

• All real estate investment involves risk
• Non risk-free asset classes have risk premia over the risk-free rate
• An appropriate proxy, following investment industry practice, for the risk-free rate prevailing in a country is the country's 10 year government bond
• The 10 year government bond reflects the global market's perception of the country's perceived geo-political risk and accurately reflects inflation expectations and currency movements
• The risk premium for holding real estate is, the sum of transparency, volatility and liquidity. The matrix adopted is

Real Estate Risk Premium = Transparency + Liquidity Risk + Volatility

This has been adopted as these key components drive the depth, liquidity and maturity of the real estate market and will therefore affect the extent to which the risk premium associated with the asset class should be adjusted. Based on this model, varying risk premiums can be applied to different counties.


040110-Kinh Bac Urban Dev Co has issued 3m corp bonds to mobilise $16.25m. The 5 yr bonds carry a coupon of 11.5% pa. SGT

190110-Vietnam kicked off the first tranche in Hong Kong of a USD$1bn offshore bond sale aimed at raising funds for the state budget and for the industrial, energy and shipping sectors. Moody’s rated Vietnam Ba3 in 2009, the same of the previous 2 years, one notch higher than some other regional countries like the Pilippines and Indonesia but 3 levels below investment grade bonds. The coupon is capped at 7% a year for a term of 10 years. SGT

260110-An overseas offer of Government bonds has raised US$1 billion at a yield of 6.95% pa with the bonds to be listed on the Singapore Stock Exchange. The yield, however, was 3.32% points higher than US Trea¬suries and a percentage point higher than the two recent bond issues by the Philippines and Indonesia, both are very active debt issuers in the region with lower debt ratings from Standard&Poor's. Moody's has also rated Viet Nam Ba3, three lev¬els below investment grade. Some experts sug¬gested that Viet Nam had to pay the higher yield due to global investors concern over Viet Nam's current fis¬cal and monetary situation and doubts whether the Government would be able to meet inflation, budget¬ary and current account deficit and growth targets. The National Assembly has estimated that the bud¬get deficit would rise to 6.2% of GDP in 2010, up from 6% in 2009, although a number of economists have predicted that it would reach 10%. Meanwhile, the trade deficit was expected to widen from over $12.2 bil¬lion last year to $14.5 bil¬lion in 2010. "The latest issue of VND3 trillion in Govern¬ment bonds on Monday did not attract a single investor. The situation was blamed on a yield capped at 11%, nearly the same as the interest rate for bank deposits in Vietnamese dung. " Viet Nam first issued bonds overseas in 2005, selling $750 million worth, with a 2016 maturity date and 7.125% yield. Then, the US prime rate was 5.% and Viet Nam's national debt margin was about 2%. The bonds are now trading on the after-market at 6.1-6.3%. VNN

250110-In equity markets, forward val¬uations are still attractive, with forward market P/Es under 13 and forecasted 2011 P/Es of approxi¬mately 11 in an environment of improving global economic growth and trade, according to VinaCapital. VIR

150410-Commercial banks are starting to revise up lending rates for short-term loans as the central bank yesterday issued a circular allowing for negotiable rates for both short and long-term loans, thus effectively removing the cap of 12%. An Binh Commercial Bank said it would offer a lending rate for short-term loans in Vietnam dong at between 14% and 15% per year while middle and long-term rates would be from 15% to 16% per year. Those rates will ap¬ply to enterprises while individual customers must bear higher rates. As the ceiling lending rate is re¬moved, banks have started to raise their borrowing rate, instead of 10.5% a year under a commitment by banks to the Vietnam Banks Association, ACB offered the high¬est borrowing rate at 11.5% per year, while Vietnam Asia Commercial Bank yesterday announced to hike bor¬rowing rates by 51 to 151 basis points to the new range from 11 % to 11.8%. SGT

160610-Government bonds were seen as less risky than other investments, suggesting that the coupon rate should be lower than prevailing deposit interest rates. Therefore, bank¬ers were arguing that, if the Government wanted them to keep deposit rates at no higher than 10% bond coupon rates needed to be cut to 9% or less. In reality, however, bonds were sold in March at an annual coupon rate of 12%, in April at 11.3%, and last week, at 11.05%. Bank deposit rates, meanwhile, were averaging no higher than 11.5%, with the highest rate recorded at 11.9%. VNN

070710-To reduce risks and maximise easy gains, banks and enterprises are joining forces when it comes to corporate bonds. Among the banks and corporations forming al¬liances are the Viet Nam Interna¬tional Bank (VIB Bank) and Vinaconex Sai Gdn JSC; the Bank for Investment and Development of Viet Nam (BIDV) and Vinaconex-Viettel Finance and Viet Nam Construction Import and Export; and Techcombank and Electricity of Viet Nam. The average coupon value is about 14-14.8% per year for the 1st year. The common deposit interest rate is now hovering at about 11.5% per year. De¬posit interest rates have fallen to 10% - making holding bonds more profitable in the long term than keeping money in banks. VNN

150710-At Asia Commercial Bank the in¬terest rate for personal loans is at 16.7% a year with the rate adjusted every 3 months. Tech¬combank applies an inter¬est rate of 15.5% a year for loans of fewer than 10 years and a 16% rate for loans of more than 10 years, with the rate ad¬justed every 3 months. VNN

150710-Only half the latest government bond issue sold. The 3 year bonds were taken at a coupon rate of 9.8% or 0.8% per year lower than previous auction. It should be noted that this is the first time 3 year paper's coupon fell below the 10% per year mark. If the issuer placed the coupon rate cap at 10.2% per year for example, the lot would have been taken." Also on July 2, the issuer sold VND950 billion ($50 million) worth of 5 year paper out of VND 1 trillion on offer at a coupon rate of 10.4% per year. The State Treasury sold VND1 trillion ($52.5 million) worth of 5 year paper at 10.95% per year on June 21. On June 1, 2010, the State Treasury sold just VND200 billion ($10.5 million) out of VND2 tril¬lion ($105 million) worth of 5 year paper on auction at a yield of 11.2% per year. At the moment, local banks normally offer deposit rates at around 11.2-11.5% per year, relatively lower than 12-14% per year level in previous months. Meanwhile, local players are lending at 13-14%. VIR

160910-With the deposit rates for Viet¬nam dong capped at 11.2% under agreement with Vietnam Banks Association, banks find it hard to mobilize dong funds and they now turn to attracting dollar deposits which can be converted into Viet¬nam dong for lending, VNN

180910-Vietnam earlier this year raised USD$1bn from its 2nd global bond sale, where it offered 10 year bonds at 6.95% yields. VNN

091210-The central bank said yes¬terday it would monitor those banks which chased up the deposit rates higher than 14% per year after some lenders had raised their deposit rate to 17% or 18%. The general director of a small joint-stock bank said that he permitted staff to offer negotiable rates of up to 17% with customers, but this level was not made public. Meanwhile, the CEO of another bank headquartered in District 1 said that the negotiated deposit rate at his bank was even higher than 17% per year. SGT

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