Manufacturing activities and domestic consumption improved in November
Manufacturing activities and domestic consumption improved in November
The manufacturing sector continued to expand in November. The index of industrial production (IIP) increased by 2.3% month-over-month (MoM) or 8.9% year-over-year (YoY), with strong growth in key exports products such as furniture (up 24.5% YoY), clothing (up 18.1% YoY), and electronics (up 12.0% YoY). Trade activities, closely linked with industrial production, were solid in November with high single-digit growth in both exports (up 8.2% YoY) and imports (up 9.8% YoY). The growth of employees in the manufacturing sector remained positive at 4.4% YoY in November albeit slightly lower than October. Trade surplus amounted to USD 1.1 billion in November and USD 24.3 billion through the first 11 months of the year. Meanwhile, the manufacturing PMI remained in expansionary territory at 50.8, slightly lower than October reading of 51.2. Both production output index (51.3) and new orders index (52.3) saw growth although the pace of growth was softer than previous months.
Foreign direct investment (FDI) remained resilient in November with FDI disbursement over the first 11 months of 2024 increasing by 7.1% YoY to USD 21.7 billion, which is the highest level in the past five years. FDI commitments grew by 1.0% YoY to reach USD 31.4 billion, with new registrations of several large projects in November such as LG Display (USD 1 billion). Public investment accelerated in November and rose by 2.4% YoY over the first 11 months of this year, achieving VND 572 trillion (USD 22.9 billion) or 73.5% of the full-year target. Regarding private investments, credit growth reached 12.5% through December 7, which was higher than 9% growth recorded in the same period in 2023 and indicated stronger credit demand – a positive sign for the economy. To promote credit growth, the State Bank of Vietnam provided additional credit quota to the banking sector for the 2nd time this year (1st time was in August), maintaining its accommodative stance regarding monetary policies.
Consumption was a bright spot in November, with retail sales increasing by 8.8% YoY up from 7.1% YoY in October. For the first 11 months of 2024, retail sales grew by 8.8% YoY, which remained below pre-COVID levels of 10-12%. Stronger tourism activities supported retail sales as the number of international visitors continued to grow strongly 20.5% MoM and 38.8% YoY in November. Year-to-date, this number reached over 15.8 million, up meaningfully 41.0% YoY but still slightly below pre-COVID level in 2019.
November saw headline CPI rising 0.13% MoM, primarily due to an increase in accommodation & construction materials prices (up 0.87% MoM) partially offset by a decline in food prices (down 0.22% MoM). On a YoY basis, headline inflation moderated slightly to 2.77% YoY in November from 2.89% YoY in October. Thus, inflation averaged 3.69% YoY over the past 11 months, well under control within the Government’s target range of 4.0% – 4.5% YoY for 2024.
Donald Trump’s victory in the U.S. presidential election drove the US dollar higher in November with the DXY up 1.7% MoM. His protectionist rhetoric around imposing heavy tariffs on imports from China (60%) and other countries (20-30%) raised significant concerns that inflation could rebound higher in the U.S., which will hamper the FED’s ability to ease monetary policies. The USD/VND exchange rate rose modestly by 0.3% in November under pressure from a stronger greenback, but the VND was also supported by another 25bps policy rate cut by the FED during the month. VND interbank rates rising to a range of 4.0-6.0% before easing towards the end of the month also supported the VND in November. While upside risks to USD/VND exchange rate remain given uncertainties regarding President-elect Trump’s policies when he takes office in January, we expect another likely rate cut by the FED in December will help ease the pressure on the VND at least in the near term.
The VN-Index dropped 1.1% to 1,250 in November. Weak market performance was primarily due to heightened investor concern around the potential impact of Trump’s protectionist policies on Vietnam’s highly open economy as well as their broader implications on the trajectory of exchange rates & interest rates. The uncertainties arising from Mr. Trump’s election triggered significant outflows by foreign investors with net outflows of over USD 470 million. From a sector perspective, the consumer discretionary, financials, energy, and materials sectors were the biggest laggards in November. Meanwhile, the IT and industrials sectors bucked the trend and ended up in the green. Notably, FPT rose 6% MoM on continued investor enthusiasm around AI and low risk to potential U.S. tariff.
Market concerns with respect to Trump’s election might be overblown. While we acknowledge there exist risks with respect to U.S. inflation & monetary policies under the new Trump administration that need to be monitored, we remain confident that Vietnam will continue to be an attractive FDI destination given its structural competitive advantages in terms of location, cost, and market access. Importantly, regardless of how these external factors might play out, we are encouraged by the strong determination of Vietnam’s government leadership in promoting economic growth. To illustrate, the National Assembly recently approved the investment policy for the North-South high-speed railway project with total investment capital of USD 67.3 billion and construction schedule 2027-2035. The Ministry of Planning and Investment estimates this project could add ~1% to annual GDP growth rate during construction.
The VN-Index is trading at a trailing P/E ratio of 14.7x, below its average P/E ratio of 17.1x over the past 4 years. In our view, recent market weakness was driven by an overreaction to Trump’s election. We maintain our bullish view on Vietnam’s stock market over the medium term, which is predicated upon: 1) further rate cuts by the FED, 2) stronger corporate earnings growth in 2025, underpinned by a more robust real estate market and better domestic consumption, 3) the potential for market upgrade by FTSE.