News and Insights

Vietnam’s economy sustained its growth trajectory, driven by a strong performance in the manufacturing sector and robust export activity. The government has set a revised economic growth target of 6.5 – 7% year-over-year (YoY) for 2024. With considerable potential for increased public investment in the second half of the year, achieving this target seems feasible.

The manufacturing sector continued to experience significant growth, maintaining an 11.2% YoY increase in July. Manufacturers expanded their workforce to support production, with employment in this sector growing steadily at 3.3% YoY. Major exports, including electronic products, mobile phones and parts, and machinery and components, saw impressive double-digit growth rates of 22.5%, 19.1%, and 28.5% YoY, respectively. Foreign Direct Investment (FDI) also remained strong, with disbursements rising by 8% YoY to USD 12.6 billion in the first seven months of 2024. Additionally, newly registered and additional FDI increased by approximately 30% YoY to USD 15.7 billion over the same period. Given these robust FDI inflows and export recoveries, we remain optimistic about the manufacturing sector's performance in the latter half of 2024.

However, public investment has not shown improvement, with a 1.6% YoY decline in July. Year-to-date, public investment grew by only 2.3% YoY, achieving just 40.6% of the annual target. Despite these challenges, the government’s ongoing efforts to boost public investment are expected to accelerate by year-end. With the manufacturing sector’s current momentum and potential for increased public investment in the second half of 2024, GDP growth could exceed 6.5% YoY for the year.

Consumption also showed strength, with retail sales increasing by 9.4% YoY in July and 8.7% YoY for the first seven months of 2024. This uptick in consumer spending was supported by better-than-expected earnings from leading consumer and retail companies, such as Vinamilk and Mobile World.

Inflation, however, picked up pace in July due to rising gasoline prices and an increase in the base salary. The consumer price index (CPI) rose by 0.48% month-over-month (MoM) and 4.36% YoY, driven by an adjustment in the base salary from VND 1.8 million to VND 2.34 million per month, a 3.55% increase in petroleum prices, and a 1.39% rise in electricity prices. With consumer prices up about 1.9% year-to-date, we believe the government can manage inflation within its target range of 4.0% to 4.5% YoY for 2024.

The Vietnamese Dong remained stable in July, supported by a weaker US dollar and improved USD inflows. The exchange rate between the USD and VND held steady in the official market, with the gap between official and unofficial exchange rates narrowing to 0.9% from 1.8% the previous month. The US dollar's decline, attributed to lower inflation and anticipated interest rate cuts in September, contributed to this stability. Meanwhile, Vietnam’s trade balance showed a surplus of USD 2.1 billion in July and USD 14 billion for the first seven months of the year. FDI disbursements continued robustly at USD 12.6 billion. Deposit rates increased by approximately 10 basis points in July, which helped close the gap between USD and VND interest rates. Looking ahead, we anticipate the USD/VND exchange rate will remain stable through the year-end, supported by (i) the weaker US dollar, (ii) rising USD inflows, and (iii) a narrower interest rate gap between USD and VND.

The VN-Index faced significant volatility in July due to heightened selling pressure from both local and foreign investors. Despite this turbulence, the VN-Index managed to recover, ending the month at 1,251.5, equivalent to an increase of 0.5% from the previous month. This recovery was largely supported by improved earnings reported by listed companies for the second quarter of 2024. However, market sentiment remained cautious, with the average daily trading value plummeting by 27% MoM to approximately USD 0.7 billion. Foreign investors continued to be net sellers, offloading around USD 320 million in July and USD 2.4 billion over the first seven months of 2024.

The energy, financials, and healthcare sectors emerged as the top performers. The energy sector was led by PLX, which reported better-than-expected earnings for Q2 2024. The banking sector showed improvements in asset quality and credit growth, with projections indicating a potential acceleration in earnings growth for the second half of 2024, estimated between 20% and 25% YoY. The healthcare sector saw gains driven by IMP, benefiting from new policies favoring EU-GMP certified domestic manufacturers.

The valuation for the VN-Index has become more appealing, with the trailing P/E ratio falling to 14.7x, significantly below the five-year average of around 17x. While short-term corrections may follow global market fluctuations, we remain optimistic about the stock market’s mid- to long-term prospects, given the robust fundamentals of Vietnam’s economy and its listed companies.