News and Insights

The second quarter of 2024 saw economic growth outpaced expectations, driven primarily by accelerated growth in the manufacturing and robust services sectors. GDP expanded by 6.9% year-over-year (YoY) in 2Q24, fueled by an 8.3% YoY growth in the industrial and construction sectors, and a 7.1% YoY growth in services. As a result, GDP growth for the first half of 2024 reached 6.4% YoY, marking the second highest growth rate in the past five years, slightly below the 6.6% YoY growth recorded in the first half of 2022. On the expenditure side, the stronger-than-expected GDP growth was led by a 6.7% YoY increase in gross capital formation and a trade surplus contributing 0.6 percentage points to overall growth. These factors suggest that the government's target of 6.5% YoY GDP growth for 2024 is achievable.

The manufacturing sector continued its strong performance in June, supported by robust growth in the Index of Industrial Production (IIP) and Manufacturing Purchasing Managers' Index (PMI). The IIP surged by 10.9% YoY in June, while the manufacturing PMI reached 54.7 points, its highest level since November 2018. Output expanded at its fastest pace, reaching 57 points, with increased purchasing activity as reflected in a rise to 54.2 points in the index of quantity of purchases. Other indicators such as electricity production, imports of raw materials, and staffing levels also confirmed the sector's upward momentum, suggesting sustained acceleration through the year-end and bolstering overall economic growth.

Total social investments strengthened by 7.5% YoY in 2Q24, or 6.8% in the first half, driven by increased private and foreign investments. Private investments rose by 7.9% YoY, while foreign investments surged by 11.4% in Q2 2024. Credit demand recovered, with credit growth reaching 4.5% year-to-date as of June 24, 2024, up from 3.83% in the same period last year. Foreign direct investment (FDI) disbursement hit a record high of USD 10.8 billion in the first half of 2024, with total newly registered and additional FDI rising by approximately 43% YoY to USD 13.5 billion, focusing on the manufacturing and real estate sectors. Public investment, however, grew slower at 2.5% YoY in 2Q24, down from 5.0% in 1Q24, but is expected to accelerate in the second half of the year due to the Government’s determination to enhance infrastructure.

Inflation remained moderate in June, driven mainly by higher food and foodstuff prices and seasonal factors. Consumer prices rose by 0.17% month-over-month (MoM) or 4.34% YoY in June, averaging 4.08% YoY in the first half of 2024. Food and foodstuff prices recorded the highest increase of 0.75% MoM, primarily due to a 3.8% MoM increase in pork prices. Increased demand for summer vacation pushed prices in culture, sports, and entertainment up by 0.68% MoM in June. Core inflation eased further to 2.6% YoY in June, supporting confidence that the government can achieve its inflation target of 4.0-4.5% YoY for the year.

The Dong continued to face pressure from a stronger US dollar and increased USD outflows in June. Imports grew by an estimated 14% YoY in June, while foreign investors withdrew a net USD 650 million from the stock market in June, totaling around USD 2 billion in the first half of 2024. The balance of payments in 1Q24 showed significant outflows, with a negative balance of USD 1.4 billion, largely due to substantial errors and omissions totaling -USD 8.0 billion. The unofficial USD/VND exchange rate reached VND 26,000/USD, 2.2% higher than the official rate, prompting the State Bank of Vietnam to intervene further by raising the CB-Bills rate to 4.5% and selling USD to stabilize the foreign exchange market.

Given the recovery of credit demand and tension in the FX market, banks continued to raise their deposit rates by an average of 10 basis points in June. With credit demand expected to rise further towards the year-end and currently slower deposit growth compared to credit growth (1.5% YTD vs. 4.5% as of June 24, 2024), we expect banks to raise their deposit rates further by around 50 bps.

The VN-Index declined by 1.3% MoM in June, influenced by (i) increased selling pressure from foreign investors, (ii) volatility in the FX market, and (iii) rising deposit rates. Foreign investors continued their trend of divesting from the Vietnam stock market, with total net sales reaching approximately USD 650 million in June, primarily driven by profit-taking activities. Stocks such as FPT, VHM, MWG, VRE, and HPG were among those mostly divested by foreign investors. Retail investors continued to return to the stock market amid low interest rate environment. Average daily trading value was around USD 0.9 billion, though it tapered off towards the end of the month amid concerns over currency depreciation.

Most sectors experienced negative returns during the month, except for the information technology sector, which notably gained 9.6%. This sector's outperformance was led by FPT (+12.3%). The VN-Index underwent a minor correction and is currently trading with a trailing P/E ratio of 15.4x, slightly below its three-year average of 16.3x. With the economy showing signs of growth acceleration, expectations are for the stock market to rebound and trend higher in the coming months. Investor focus is likely to remain on companies demonstrating strong earnings growth in 2Q24 and promising prospects for the second half of the year. We maintain confidence in Vietnam's stock market outlook for the remainder of the year, supported by robust economic growth and anticipated acceleration in earnings among listed companies.