News and Insights

Vietnam's GDP grew by 5.7% YoY in the first quarter of 2024, marking the highest growth rate in the past four years and reinforcing the acceleration of the economy. The faster growth pace was primarily driven by stronger manufacturing activity (+7.0% YoY) and resilient services (+6.1% YoY). On the expenditure front, gross capital formation increased by only 4.7% YoY in the first quarter of 2024, primarily due to seasonally slow public disbursement. The expansion of the trade surplus (USD 8.1bn in 1Q24 vs. USD 4.8bn in 1Q23) significantly contributed to the overall growth in the first quarter of 2024. With expectations of stronger investment in the coming time, robust consumption, and a rise in manufacturing, we maintain our optimistic outlook for economic growth by year-end. We anticipate GDP growth to finish the year at 6.5% YoY.

The manufacturing sector continued to strengthen, with the index of industrial production (IIP) expanding by 5.7% YoY in 1Q24. The acceleration of manufacturing activity was supported by double-digit growth of export (+17.0% YoY in 1Q24 vs. -11.0% in 1Q23). Meanwhile, consumption strengthened in March, with retail sales increasing by 9.2% YoY in March or 8.2% in 1Q24. This boost in consumption was largely attributed to an increase in international tourists. International tourist arrivals approached 4.6mn tourists (+72% YoY), equivalent to 103% of the pre-pandemic level. Korean visitors reached an all-time high of 1.2mn in 1Q24, exceeding the pre-Covid level by 11.3%. Tourist arrivals from China maintained their recovery pace, reaching 70% of the pre-pandemic level. Notably, European visitors soared by 72% YoY thanks to the country’s relaxation of visa policies. As such, Vietnam’s tourism sector experienced a remarkable 46% YoY increase in 1Q24.

In March, headline inflation decreased by 0.23% compared to the previous month, in line with our expectations. Overall, in the first quarter of 2024, the country’s inflation rate stood at 3.8% YoY, well below the Government’s target. The decline in inflationary pressure in March was mainly attributed to the food and foodstuff sub-index, which accounts for one-third of the CPI basket. This sub-index decreased by 0.76% MoM due to relatively weaker demand after the Tet holiday and lower prices of rice (-0.5% MoM) and pork (-2.2% MoM).

In the FX market, the Dong weakened further against the US dollar due to (i) a stronger US dollar, (ii) increased demand for the US dollar from importers, and (iii) a negative interest rate gap between the VND and USD. The Dong depreciated by approximately 2.9% against the US dollar, consistent with movements in regional currencies. In March, the State Bank of Vietnam (SBV) re-issued CB-bills with a total amount of USD 6.8bn to withdraw surplus liquidity from the banking system and support the domestic currency. Overnight interbank interest rates rose to around 4.0% pa due to short-term tightened liquidity, but the impact of this measure on the exchange rate was not as significant as expected. The Dong could face further pressure in the short term due to divergence in monetary policies, and we expect the SBV to intervene further to partially support the Dong through FX forward sales. However, we maintain confidence in the Dong in the long term, given the country’s strong fundamentals. The trade surplus was estimated to expand to USD 8.1bn in 1Q24, and the country’s balance of payments recorded a surplus of USD 5.7bn in 2023.

The VN-Index closed the month of March with a 2.5% increase, extending its winning streak for three consecutive months. Most sectors ended the month in the green, with Consumer Discretionary (+8.1%) and Information Technology (+7.3%) emerging as the top performers. Despite negative events such as the resignation of Vietnam’s president, the trial of Van Thinh Phat, and the State Bank of Vietnam's reissuance of CB-Bills, the VN-Index managed to increase further due to the participation of retail investors. The average daily trading value climbed by approximately 30% to USD 1.1bn. However, foreign investors remained net sellers with a total net sell-off of USD 0.45bn, mostly divesting from VNM (USD 89 million) and VHM (USD 87 million). ETFs also experienced outflows of around USD 184mn in March.

The forward P/E ratio of the VN-Index is 12x, substantially lower than its 5-year average P/E of around 17x. Looking ahead, we maintain a positive outlook for the Vietnam’s stock market, primarily driven by (i) accelerating earnings growth (ii) robust inflows from domestic investors amid a low deposit interest rate environment in Vietnam, (iii) the Government’s determination to promote the market upgrade, and (iv) possible return of foreign investors. In short-term, although selling pressure could increase due to profit-taking activity and the weak Dong, market sentiment could be supported by listed companies’ 1Q24 earnings results and their 2024 guidance.