News and Insights

• Vietnam's GDP grew by 6.9% YoY in the first quarter of 2025, marking the highest growth rate in the past five years, primarily driven by stronger manufacturing and resilient exports activities
• Retail sales rebounded tremendously, with real growth reaching 7.5% YoY in 1Q25, highest growth rate in the last 6 quarters.
• The VN-Index remained resilient in the month of March with a 0.1% MoM and 3.2% YTD increase, driven by strong domestic capital and the rallies led by VIC/VHM.

Vietnam's GDP grew by 6.9% YoY in the first quarter of 2025, marking the highest growth rate in the past five years and reinforcing the acceleration of the economy. The faster growth pace was primarily driven by stronger manufacturing activity (+7.4% YoY) and resilient services (+7.7% YoY). Exports maintained double-digit growth at 11% YoY and FDI disbursement remained solid at 7.2% YTD in 1Q25. On the expenditure front, gross capital formation increased by 7.2% YoY in the first quarter of 2025, higher than last year of 4.7% YoY and final consumption also up 7.5% YoY. With expectations of faster public investment disbursement in the coming time, and policy stimulus to enhance domestic consumption, we maintain our optimistic outlook for economic growth by year-end.

The manufacturing sector continued to strengthen, with the index of industrial production (IIP) expanding by 7.8% YoY in 1Q25 (1Q24: 5.9% YoY), driven by outstanding growth in selected sectors such as motor vehicles (+36% YoY), textile and garment (+14.6% YoY), furniture (+13% YoY) and machinery and equipment repair (+12.8% YoY). We believe the strong performance relates to export’s front-loading orders before Trump’s tariffs being announced on April 2nd. Exports experienced tremendous growth in March (+14.4% YoY and +24% MoM), bringing the total trade surplus of USD 3.2bn by the end of the quarter (1Q24: USD 7.8bn). The manufacturing PMI returned to growth after 4 months to reach 50.5, signaling an improvement in business conditions at the end of first quarter. A renewed increase in new orders was also seen amid improvement in customer demand, but ongoing weakness in international demand continued to impact new export orders. External risks such as weakening global demand and tariffs remain key challenges for the sector to achieve the 9.5% target for the year.

Consumption strengthened in March, with retail sales increasing by 10.8% YoY in March or 9.9% in 1Q25. Real retail sales growth reached 7.5% YoY in 1Q25, highest growth since 3Q23. Service consumption growth (14.4% YoY) still outpaces goods consumption (9% YoY) in 1Q25. This boost in consumption was largely attributed to an increase in international tourists. International tourist arrivals approached 6 mn tourists (+30% YoY), far exceeding the pre-pandemic peak of 17% and highest quarterly level ever seen. Tourist arrivals from China maintained solid recovery, reaching 87% of the pre-pandemic peak level in 4Q19.

In March, headline inflation decreased by 0.03% compared to the previous month, in line with our expectations. Overall, in the first quarter of 2025, the country’s headline inflation rate stood at 3.2% YoY and core inflation at 3%, well below the Government’s target. The decline in inflationary pressure in March was mainly attributed to the food and foodstuff (-0.05% MoM), which accounts for one-third of the CPI basket, despite rising hog prices (+3.5% MoM). Transportation sub-index also declined -1.4% MoM mainly due to decline in gasoline prices (-3.6% MoM) by domestic adjustments and lower travel demand after the Lunar New Year.

In the FX market, the Dong barely depreciated against the US dollar in the month (0.1% MoM) despite the DXY index dropped significantly in March to 5-month low at 104pts. This is due to (i) rising USD demand from the State Treasury (approximately $1 billion) and corporate bond repayment, (ii) weaker trade balance, (iii) SBV’s effort to maintain ample VND liquidity to spur credit growth and (iv) speculation surrounding gold smuggling for arbitrage driving USD demand. The USD/VND depreciated 0.8% YTD. On a recent note, Trump’s reciprocal tariffs have been announced and trading partners including Vietnam have started negotiations. We have observed an even weaker DXY in response to the announcement, with market consensus now expecting a weaker US economy should the plan follow through. As a result, the low level of DXY will face less pressure on VND in the coming months.

In March, the State Bank of Vietnam (SBV) ceased the issuance of SBV bills while maintaining liquidity support through collaterised lending via the open market operations (OMO). Notably, the extension of OMO loan terms while keeping interest rates unchanged reflects the readiness to provide liquidity to the system when needed. The SBV shifted from a net withdrawal position in the previous month to a net injection position in March, with a total net injection of VND 36 tn. Meanwhile, deposit interest rates declined broadly since late February, with a common decrease of 10-20 bps, in line with the SBV directives.

The VN-Index remained resilient in the month of March with a 0.1% MoM and 3.2% YTD increase, despite continued foreign net selling. Trading turnover continued to surge for the second consecutive month with the average daily trading value up 27.3% MoM to USD 0.9 bn, driven by strong domestic capital and the rallies led by VIC/VHM. Key catalysts remain intact, including the positive change in administrative and economic reforms, KRX system rollout in May and a potential FTSE upgrade in September. The real estate sector stood out as the sole gainer rising 15.4% in March, driven mainly by sharp gain in VIC (+41%) and VHM (+24.5%). Meanwhile, the technology sector (-13.4%), energy (-8%) and communication services (-6.6%) were the month’s top laggards. However, foreign investors remained net sellers with a total net sell-off of USD 0.43 bn, mostly divesting from FPT (USD 154 mn), TPB (USD 62 mn) and VNM (USD 31 mn). ETFs also experienced outflows of around USD 95 mn in March.

The TTM P/E ratio of the VN-Index is 13x, substantially lower than its 5-year average P/E of around 17x. In the short-term, although selling pressure could increase due to the negative surprise of reciprocal tariffs, market sentiment could be supported by expansionary fiscal and monetary measures by the government to enhance the strength of the domestic economy. We anticipate gradual stabilization following Vietnam’s pro-activeness in negotiations with Trump’s administration. For statistical purposes, over the past 10 years, the VN-Index has been corrected by more than 4% on 25 occasions. Despite short-term momentum, the market's recovery rates after 1 month and 3 months have been relatively attractive, standing at 70% for the 1-month period and 75% for the 3-month period.