News and Insights

February’s macroeconomic data exhibited an acceleration of economic growth despite some distortions attributed to the Lunar New Year. The manufacturing sector expanded further, signaled by robust increases in exports of manufactured goods. In particular, the manufacturing PMI remained above the 50-demarcation line for two consecutive months, closing out February at 50.4 points, driven by increased new orders and output. Business confidence reached one-year high, and employment increased for the first time in four months. Meanwhile, exports enjoyed a double-digit growth rate of 19% YoY during the first two months of this year, marking the first such occurrence since December 2022 as major export products increased by 30%–50% on average. As exports of manufactured goods continue to deliver robust growth and FDI inflows remain resilient, the country’s manufacturing sector is likely to strengthen further in the coming months.

Local consumption maintained its growth trajectory during the first two months of 2024 with retail sales growing by 8.1% YoY. The tourism and accommodation & catering sectors continued to lead the trend, with strong growth rates of 36% and 14% respectively as international tourist arrivals nearly approached the pre-pandemic level. Monthly international tourist arrivals averaged 1.5 million visitors in January and February, with Chinese tourists reaching around 60% of the pre-pandemic level compared to only 30% in 2023. We expect the upward momentum of consumption to be further reinforced in the coming time due to the low interest rate environment, improvements in external economic activities, and supportive measures from the Government.

In February, the economy experienced a temporary loss of stability, marked by a seasonal acceleration of inflation and a weaker Dong against the US dollar. Consumer prices increased substantially with headline inflation climbing by 1.0% MoM. This rise was primarily driven by transportation costs (+3.1%) and food and foodstuff prices (+1.7%), largely attributed to the Lunar New Year. As inflationary pressure was primarily driven by seasonal factors, we expect nationwide inflation to stabilize in the coming months. Historically, the consumer price index typically decreased by an average of 0.2% to 0.3% MoM after the Tet holiday. In the FX market, the Dong has depreciated by 1.7% against the US dollar since the beginning of this year, with the gap between the exchange rates in the official and unofficial markets widening to around 3%. This weakening of the Dong could be attributed to seasonally abundant liquidity at banks and a stronger US dollar. As foreign inflows, including trade surplus and FDI disbursements, remain robust, we maintain confidence in the mid and long-term outlook for the Dong. In the short term, the State Bank of Vietnam has initiated the issuance of CB-Bills to absorb abundant liquidity from the banking system and support the Dong. Previously, from September to November 2023, the State Bank of Vietnam sold around USD 15bn worth of CB-Bills.

The VN-Index ended February with a gain of 10.9% YTD, outperforming all regional peers, including Philippines’ PCOMP Index (+7.7%), Indonesia’s JCI Index (+0.6%), and Thailand’s SET Index (-3.2%). The upward momentum of the VN-Index was primarily fueled by the Financials sector (+17.9% YTD) as investors rushed to accumulate bank stocks due to high expectation for earnings growth in 2024, improvement in asset quality, and attractive valuation. Information Technology recorded the second-highest performance with a 15.6% YTD increase, driven by strong demand for digital transformation. The robust performance of the VN-Index coupled with record low interest rates stimulated demand from retail investors, thus pushing average daily trading value by 25% to around USD 0.9bn. However, foreign investors remained net sellers, with a total net sell of around USD 100mn during the first two months of 2024, while ETFs experienced significant outflows of USD 131mn.

The VN-Index experienced increasing selling pressure in early March due to a weaker Dong against the US dollar and profit-taking activities. However, we anticipate the market to maintain its upward momentum supported by (i) increased participation of retail investors due to low interest rates, (ii) the Government’s effort to promote market upgrades, and (iii) a possible return of foreign investors. Investors might focus on listed companies’ annual general meetings in the coming time. Additionally, small and mid-cap stocks might witness stronger inflows as their valuation becomes more reasonable and attractive.