Vietnam: Brighter days ahead after a challenging year

In 1H23, some big names have announced plans to increase their presence in Vietnam, such as BOE, Marvell Technology and Apple

by IFAST RESEARCH TEAM / pic BLOOMBERG

VIETNAM, located in South-East Asia, is a vibrant and rapidly developing country with a rich history and diverse culture.

The country has experienced remarkable economic growth since the early 1990s when it implemented economic reforms known as “Đổi Mới” (Renovation). The economy has transitioned from a centrally planned to a socialist-oriented market economy. Today, Vietnam is one of the fastest-growing economies in the region and a popular destination for foreign investment, especially for the manufacturing, technology and tourism sector given the “China +1” strategy.

Economic Growth Likely to Persist

In recent years, Vietnam has taken the baton from China and benefitted from supply chain relocations, strong foreign direct investment (FDI) and political stability. Having witnessed robust growth momentum of approximately 8% after the global pandemic in 2022, the fastest annual pace since 1997. This has resulted in the country outpacing the world and other Asean countries in real GDP growth.

Over the years, the key areas that have contributed to Vietnam’s stellar growth are exports, FDIs and government spending on infrastructure.

Exports have been increasingly prominent, from contributing about 57% of GDP in 2000 to close to 94% of GDP in 2022. Moving forward, we expect the positive momentum of exports growth in the second half of 2023 (2H23) to spur into 2024, driving the exports recovery for Vietnam.

Vietnam Continues to Be Favoured by FDIs

In recent years, Vietnam has been the home for foreign direct investments within the Asean region. The shift in global manufacturing supply chains to the Asean region, with Vietnam expected to be one of the main winners, benefitting from its relatively cheaper manufacturing costs and its large labour force.

In 1H23, some big names have announced plans to increase their presence in Vietnam, such as the Chinese display manufacturer BOE Group Co Ltd, the US semiconductor producer Marvell Technology Inc and the global tech giant, Apple Inc.

Meanwhile, the visit of US President Joe Biden and the upgrading of US-Vietnam relations to a level equal to that with China encouraged “friend shoring” of FDI and technology transfers.

Laying Down Groundworks

As the Chinese idiom goes “build roads first before getting rich”, the government has been making substantial investments to improve the country’s transport network, from building airports, seaports to railways, roads and highways.

In 2022, the government has disbursed the state budget worth US$23 billion (RM108.79 billion) on infrastructure spending, equivalent to 6% of the GDP. The country’s public and private investment in infrastructure has reached 5.7% of GDP in recent years, the highest in South-East Asia and the second highest in Asia after China. These investments have yielded significant benefits for the economy, enabling businesses to transport goods and people more efficiently, reducing costs and increasing competitiveness.

Moving forward into 2024, growth for the economy is projected to be 6%-6.5%. Though global economic growth is expected to moderate in 2024, we believe the stronger growth in Vietnam will be driven by both exports and FDIs.

Supportive Monetary Policy

Vietnam’s central bank, the State Bank of Vietnam (SBV), was among the few countries that cut its policy rates while other central banks were raising their rates. This is in the effort to boost economic growth which was weighed by weak global demand and public investment stalled amid an intensified anti-graft crackdown.

As a result, the central bank of Vietnam has cut its policy rates four times in 2023, reducing its refinance rate and discount rate by an accumulated 150bps each to spur economic growth from 6% to 4.5%.

Entering 2024, we expect the central bank of Vietnam to maintain its accommodative stance to further support the plummeted real estate sector. Meanwhile, the inflation outlook for Vietnam is positive, likely to remain within the central bank’s target range of 4.0% to 4.5%.

With the benchmark interest rate standing at 4.5% (50 basis points [bps] higher than its historical lowest point of 4%) or lower, it will be supportive of local equities, as when borrowing costs lower, there will be more liquidity in the market and business activities tend to increase.

Stock Market Turbulence, Supportive Policies

The short-term turbulence faced by Vietnamese equities may come to an end.

Vietnam’s anti-graft campaign, under way since 2016, has recently gained momentum after authorities in the Communist-ruled country cracked down on several high-profile fraud and corruption cases involving top corporate executives and high-ranking state officials last year.

This has spread fears across the investment universe, dampening investors’ confidence in Vietnamese equities as the real estate sector plays an ever-important role in the Vietnam stock market.

We believed that we might be seeing the light at the end of the tunnel. Vietnam’s amended 2024 Land Law will be a game changer in restoring investor confidence. With a focus on modernising land management practices and promoting fairness, the amended law aims to foster sustainable socio-economic development in the country.

In recent years, enhancing the local stock market has been the government’s focus. Vietnam’s market liquidity has also been improving over the last few years with average daily trading volume rising exponentially.

Currently, the Vietnamese government is speeding up the implementation of the Korea Exchange (KRX) trading system to facilitate the deployment of new products and solutions to the Vietnamese stock market and ensure the smooth operation of the market continuously and effectively, which can support intraday trading, short selling, option contracts or the application of the central counterparty clearing house mechanism.

Meanwhile, the shortening of settlement time for securities with the T+2 settlement cycle since 29th August 2022 is helping boost investment efficiency and enhance market liquidity. Moving forward, we expect such moves will gradually bring Vietnam’s stock market more in line with international standards.

Key Challenges, Takeaways

Some key challenges towards our positive call are the slower recovery of exports due to shipping disruption, persistence of energy issues which will affect foreign direct investors’ confidence in setting up production plants in the country.

The recent news on the resignation of President Vo Van Thuong may cast short term shake out on investor sentiment, but this is not the first time, and we believed that the impact may not be very material, as the current political party is still in charge and political direction is expected to be more or less the same.

All in all, we expect Vietnam to continue benefit from the short-term tailwinds such as robust economic growth, supportive monetary policy and supportive government policy while longer term growth drivers such as influx of FDIs, a large young population and stock market reformation will propel the nation towards a greater prominence on the global stage.


  • The views expressed are of the research team and do not necessarily reflect the stand of the newspaper’s owners and editorial board.