News and Insights

In August, the manufacturing sector continued to strengthen. The index of industrial production (IIP) increased by 2.0% month-over-month (MoM) or 9.5% year-over-year (YoY) in August. The growth of employees in the manufacturing sector also posted a new high of 4.5% YoY in August. Meanwhile, the Manufacturing PMI remained in expansionary territory for the third consecutive month, ending the month at 52.4 points. Manufacturers increased their production due to rising demand from clients and ramped up their purchasing activity in response to higher new orders. The quantity of purchases index showed the fastest growth since May 2022, suggesting that industrial production is likely to expand further by the end of the year. Conversely, input costs and output prices softened in August, largely due to lower transportation costs. This could lead to a slowdown in inflationary pressures in the coming months, aiding the government in managing inflation.

Public disbursement has remained slow and has not seen significant improvement. Public investment rose slightly by 1.3% YoY in August, or by 2.0% YoY over the first eight months of this year, achieving only 48% of the annual target. In contrast, foreign investment was strong, with Foreign Direct Investment (FDI) disbursement increasing by 8.0% YoY to USD 14.2 billion over the first eight months of 2024. Newly registered and additional FDI also grew at a rate of 7.0% YoY, reaching USD 20.5 billion, the highest level in the past five years. Regarding private investments, credit growth was estimated at 6.6% year-to-date (YTD) as of August 26th, an improvement from 5.6% YTD during the same period last year. Given the challenge for the banking system to meet the full-year target of 15-16% YoY, the State Bank of Vietnam (SBV) has decided to relax credit growth limits for credit institutions. Overall, we remain optimistic that total social investments will increase at a faster pace by the end of this year, driven primarily by accelerated public disbursements and stronger credit growth.

In August, the Consumer Price Index (CPI) remained unchanged from the previous month, primarily due to a decrease in transportation prices. Headline inflation was 0% MoM and 3.46% YoY in August, significantly down from 4.37% YoY in July. Thus, inflation averaged 4.04% YoY over the past eight months, within the Government’s target range of 4.0% – 4.5% YoY. The reduction in inflationary pressure in August was mainly due to a 5.8% drop in gasoline prices, which partially reduced the transportation sub-index by 1.98% MoM and the overall CPI by 0.19%. We anticipate that the Government will effectively control inflation this year, particularly given that manufacturers’ input costs and output prices have weakened this month.

The foreign exchange market remained calm, primarily due to a weaker US dollar. The Vietnamese Dong appreciated against the US dollar in line with other regional currencies, with the USD/VND exchange rate decreasing by 1.5% month-over-month to VND 25,050/USD by the end of August. In the unofficial market, the USD/VND exchange rate fell to VND 25,200/USD, further narrowing the gap between the official and unofficial rates to 0.6%. Given the stable FX market conditions, the State Bank of Vietnam (SBV) also reduced the OMO rate to 4.25% and the CB-Bill rate to 4.15%. Looking ahead, we remain optimistic about the FX market and expect the USD/VND exchange rate to stay stable through the end of the year, supported by (i) a weaker US dollar, (ii) increasing USD inflows, and (iii) a narrower interest rate gap between the USD and VND.

The VN-Index continued its upward trajectory in August, driven by several factors: (i) the Government's measures to elevate Vietnam’s stock market to emerging market status (e.g., non-prefunding solutions), (ii) the potential Federal Reserve rate cut in September, and (iii) the State Bank of Vietnam’s (SBV) decision to increase credit limits for banks. However, the VN-Index encountered higher selling pressure as it approached the resistance level of 1,280 – 1,300, ending the month at 1,283.9, which represents a 2.6% increase from the previous month. Despite the market rally, investor sentiment has not seen a substantial improvement, with the average daily trading volume remaining low at USD 0.7 billion. Foreign investors continued to sell, with a total net sell of approximately USD 145 million in August, accumulating to USD 2.56 billion over the first eight months of the year.

Most sectors posted positive returns in August, with the consumer discretionary, real estate, and information technology sectors showing the strongest performance. The real estate sector's recovery was largely driven by Vingroup, which received a boost from several favorable developments, including the launch of the Vinhomes Co Loa project and Vinhomes' plan to repurchase up to 370 million treasury shares.

The VN-Index is currently trading at a trailing P/E ratio of 15.4x, close to its average P/E ratio of 16.3x over the past three years. Consequently, selling pressure and profit-taking may intensify in the near term, particularly as the VN-Index nears the resistance level of 1,280 – 1,300. Nonetheless, we maintain a positive outlook on Vietnam’s stock market for the rest of the year, supported by (i) the potential Federal Reserve rate cut in September, (ii) strong economic activity, and (iii) anticipated rapid growth in earnings in the second half of 2024.