News and Insights

IN BRIEF

The manufacturing sector remained resilient in February, with the index of industrial production (IIP) surging 17.2% YoY, a sharp acceleration from 0.6% YoY in January, bringing 2M25 growth to 7.2% YoY. Key industries such as automobiles, and textile and garments recorded robust growth of 53.5% YoY, and 22.5% YoY, respectively, in the first two months of the year. Despite this strength, the manufacturing PMI remained below the 50 threshold for the third consecutive month, and settling at 49.2 in February, up from 48.9 in January. The slight improvement was attributed to a moderate contraction in new orders and employment. However, business confidence improved for the second straight month, reaching its highest level since June 2024. On the investment front, public investment stable at VND 60.4 tn or USD 2.4bn, comparable to last year. Meanwhile FDI continued its upward trajectory, with disbursement rising 5.4% YoY to reach USD 2.9bn. FDI commitments reached USD 6.9 bn, posting outstanding growth of 36% YoY in 2M25, reflecting strong investor interest.

The country’s trade balance recorded a modest surplus of USD 1.47bn in 2M25, lower than the USD 5.1bn surplus over the same period last year. Exports strengthened +26% YoY in Feb’25 and climbed 8.4% YoY to USD 64.3bn during the first two months of this year, primarily driven by domestic enterprises (+12.8% YoY). Meanwhile, imports surged at a faster pace of +40% YoY in Feb’25 and 16% YoY in 2M25 to reach USD 62.8bn in 2M25. Notably, imports of electronic products, machinery & spare parts climbed 29% and 19% YoY, respectively, thus reflecting the expansion of the country’s manufacturing sector and indicating potential frontrunning of tariffs among importers.

Consumption recovered modestly in February. Retail sales increased 9.4% YoY in nominal terms or 6.2% YoY in real terms in 2M25, primarily driven by accommodation & catering services (+12.5% YoY) and tourism (+16.4% YoY). Total international tourist arrivals reached nearly 4 million tourists in 2M25, posting encouraging growth of 30% YoY. Chinese tourist also reached 74% of pre-pandemic level.

In February, headline inflation increased 0.34% MoM, and 2.91% YoY so average CPI reached 3.27% YoY for 2M25, well-below the Government’s target. The inflationary pressure in February was mainly attributed to the food and foodstuff sub-index +0.43% MoM (which accounts for one-third of the CPI basket), where hog prices surged due to supply shortage and dining out cost increased. Rental costs (+0.55% MoM) and transportation costs (+0.63% MoM) also contributed to CPI in February due to growing demand seasonally.

Despite the DXY declining by nearly 1% in February 2025, the USDVND exchange rate surged by 1.8% compared to the previous month and 0.8% YTD. In February, the State Treasury registered foreign currency purchases from commercial banks amounting to approximately $500 million, alongside the pressure of foreign debt repayments from several large enterprises. Nevertheless, the supply and demand for foreign currency remained relatively balanced. Liquidity in the banking system remained ample, though it diverged among banks as the average overnight interbank rate reached 4.5% (+40bps MoM).

The most notable development in the exchange rate over the past month was the State Bank of Vietnam (SBV) continuously adjusting the central rate while also modifying the reference rate. Since the beginning of the year, the central rate has increased by 1.73% to 24,762 VND/USD, while the selling spot rate has risen by 1.82% to 25,912 VND/USD. In contrast, the free market selling rate has decreased by 0.3% YTD.

The SBV is adopting a more flexible approach to exchange rate management, allowing the VND to gradually depreciate. Since February 11, the SBV has changed its method for determining USD buying and selling rates, shifting to a mechanism that closely tracks daily fluctuations in the central exchange rate instead of maintaining a fixed level. The spot buying rate is set 50 VND higher than the lower bound, while the spot selling rate is 50 VND lower than the upper bound. This move by the SBV may be aimed at preserving foreign exchange reserves in the context of continued global economic uncertainty and expectations that the USD will remain strong throughout the year.

The VN-Index concluded February on a high note, surging 3.1% MoM in February to break through a historic resistance level, closing at 1,305. Buying momentum is increasingly pronounced, particularly in sentiment-driven sectors such as financials, real estate and materials, which are well-positioned to benefit from recent policy shifts. Some factors fueled the upward momentum of the VN-Index including (i) the US postponing tariffs; (ii) the National Assembly approved GDP target of 8%, credit growth target of 16% while encouraging banks to maintain low interest rates and (iii) potential KRX operations in May. However, foreign investors were persistent with a total net sell of around USD 387mn, and they mostly divested from FPT (USD 52mn), VNM (USD 44mn), and MSN (USD 39mn). ETFs also experienced outflows of around USD 45.5mn in February.

The TTM P/E and forward 12-month P/E ratio for the VN-Index is 14.2x and 10x, respectively, substantially lower than its 5-year average P/E of around 15x. Although the market could face increasing selling pressure from profit taking due to uncertainty around trade tensions, we expect the market to maintain its upward momentum on the back of (i) optimism on macroeconomic outlook, (ii) low-interest rate environment, and (iii) possible return of foreign investors.