News and Insights

Vietnam's GDP grew by 7.4% YoY in the third quarter of 2024, accelerating from 6.4% growth rate in the first half of 2024 despite the impact from Typhoon Yagi in September. The faster growth pace was primarily driven by stronger activity in both industry & construction sector (+9.1% YoY) and services sector (+7.5% YoY). As a result, GDP growth for the first nine months of 2024 reached 6.8% YoY, which outpaced most estimates per our observation. On the expenditure front, gross capital formation grew by 7.1% YoY in the quarter, and a trade surplus contributed 1.2 percentage points to overall growth. With expectations of positive momentum in manufacturing activities, robust investments, and ongoing recovery in consumption, we maintain an optimistic outlook for the economy in 4Q24 with GDP growth to finish the year in the 6.5-7.0% YoY range.

The manufacturing sector continued to strengthen, with the index of industrial production (IIP) expanding by 10.0% YoY in 3Q24. The acceleration of manufacturing activity was supported by double-digit growth of export (+15.8% YoY in 3Q24 vs. -1.2% in 3Q23). Foreign direct investment (FDI) was also a bright spot, with YTD disbursements achieving strong growth of 8.9% YoY to reach USD 17.3 billion. On the other hand, the manufacturing PMI dropped sharply to 47.3 due to the impact of Typhoon Yagi, marking the first decline after five consecutive months of staying above the 50-point threshold. New orders index declined to 45.9 but new export orders index held up better at 49.7, indicating resilient international demand. Importantly, employment index remained solid at 50.4, implying manufacturers’ continued confidence regarding future output. In our view, the disruption from Typhoon Yagi should be temporary and Vietnam’s manufacturing activities will quickly recover in the last quarter to meet demand from the holiday season.

Consumption remained modest in September, with retail sales increasing by 7.6% YoY down from 7.9% YoY in August. For the first nine months of 2024, retail sales grew by 8.8% YoY, which remained below pre-COVID levels of 10-12%. Typhoon Yagi likely created some negative impact on retail consumption in September given store closures and weaker tourism activity in the Northern region. That said, we remain optimistic that the strength witnessed in manufacturing, trade, and investments will translate into stronger income for the consumers, which will drive higher retail consumption.

September saw headline CPI rising 0.29% MoM, primarily due to an increase in food and catering services prices (up 0.92% MoM) partially offset by lower transportation prices (down 2.77% MoM). However, on YoY basis, headline inflation was merely 2.63% YoY in September, down significantly from 3.46% YoY in August. Thus, inflation averaged 3.88% YoY over the past nine months, still in check within the Government’s target range of 4.0% – 4.5% YoY for 2024.

The Vietnamese dong continued to appreciate against the US dollar in September as the FED made the first cut to policy rates by 50bps, which helped narrow the interest rate gap between the USD and VND. The USD/VND exchange rate decreased by 1.2% MoM to VND24,568/USD by the end of September. Given better FX market conditions, the State Bank of Vietnam (SBV) was able to reduce the OMO rate by another 25bps to 4.00% and continued to inject more liquidity into the banking system as it stopped bill issuance and only engaged in reverse repo transactions during September. Looking ahead, we remain cautiously optimistic about the FX market and expect the USD/VND exchange rate to stay relatively stable through the end of the year, supported by (i) further rate cuts by the FED and (ii) solid FDI and trade flows.

September was a tale of two halves for the stock market as the VN-Index first corrected from the resistance level of 1,280-1,300 to a low of 1,239 in the first half due to (i) poor investor sentiment given U.S. market sell-off on growth concern, (ii) uncertainty around the impact of Typhoon Yagi on Vietnam’s economy, and (iii) profit taking activities amid low liquidity. However, the market came roaring back in the second half to end the month at 1,288 (up 0.3% MoM) with multiple positive catalysts, including (i) the FED’s 50bps rate cut which marked the beginning of a new monetary easing cycle, (ii) the approval of the Non-Prefunding Circular for foreign institutional investors, paving the way for a potential market upgrade by FTSE next year, and (iii) China releasing new major stimulus packages. Excluding the 5% VIB divestment by the Commonwealth Bank of Australia worth USD 107 million, foreign investors returned to be net buyers in September with total net inflows of nearly USD 20 million. Average daily trading volume was only USD 720 million in September but showed positive momentum through the month with liquidity in some sessions hitting the USD 1 billion mark.

September saw mixed sector performance with positive returns from the financials and materials sectors but weak performance by the consumer, utilities, and energy sectors. Within the financials sector, the banking and brokerage industries enjoyed meaningful inflows from foreign investors, with SSI, TCB, TPB, CTG, HCM, and NAB among the top ten net buys. In the materials sector, steel producers like HPG and HSG enjoyed solid gains, buoyed by optimism regarding China’s new stimulus packages. The VN-Index is currently trading at a trailing P/E ratio of 15.8x, still below its average P/E ratio of 17.3x over the past four years. With a positive economic & earnings outlook for the remainder of 2024 and 2025 as well as improving liquidity & investor sentiment both locally and abroad, we expect the VN-Index to break through the strong resistance level of 1,300 decisively in October with potential for further gains in the following months.