News and Insights

IN BRIEF
•Vietnam’s economic growth was reinforced in January 2025 with gradual improvement of manufacturing sector, robust FDI inflows and resilient consumption during the Tet holiday.

•Inflation picked up but manageable in January primary due to seasonal factor and administered prices so it might ease in the coming months. Despite stronger DXY, the depreciation pressure for the Dong eased in January, thanks to a strong trade balance and inflows of remittances.

•The VN-Index declined in the first half of the month due to cautious sentiment ahead of President Trump taking office, before recovering ahead of the Tet holiday, attributed mainly to the rallies of bank stocks. VNI closed the month at 1265, declined -0.1% in January.

Vietnam’s economic growth was reinforced in Jan 2025 with gradual improvement of manufacturing sector, robust FDI inflows and resilient consumption during the Tet holiday. Inflation picked up in January primary due to seasonal factor and administered prices so it might ease in the coming months. Despite stronger DXY, the depreciation pressure for the Dong eased in January, thanks to a strong trade balance and inflows of remittances.

The manufacturing sector expanded 0.6% YoY despite the Tet holiday. Production in major products, including textile and garment, wood and wooden furniture, automobiles posted robust growth rates of +10% YoY, +11% YoY and +34% YoY, respectively. The PMI once again fell below the 50 threshold, but the non-seasonally adjusted figure stayed slightly above 50 so we are still skeptical on the conclusion of deteriorating in Vietnam’s manufacturing activities. Despite declines in production and new orders, business confidence rebounded solidly in January, forecasting a recovery in market demand in the coming months. The primary focus will be any improvements in March to confirm signs of front-loading or shifts in export orders from affected countries to Vietnam. Despite declines in export and import value due to the holiday, the trade balance recorded an impressive surplus of USD 3bn in Jan’25 vs Dec’24 of 0.5bn.

FDI continued to be the growth engines of the whole economy while consumption strengthened. FDI disbursement rose 2% YoY to USD 1.5bn, and FDI commitment surprisingly soared 48.6% YoY to USD 4.3bn, primarily driven by USD 3bn worth of FDI inflows into manufacturing sector. Retail sales increased by 9.5% YoY in nominal terms or 6.6% in real terms, the highest growth observed since 2024, led by robust tourism (+17% YoY) and accommodation & catering services (+15% YoY).

 

Inflation remained well below the Government’s target in January and manageable for the Tet month. Headline inflation increased by 0.98% MoM or 3.63% YoY in January mostly due to transportation prices +0.95% MoM - heightened demand during Tet and administered prices including healthcare fees. The health and personal care index rose 9.5% MoM as some provinces raised their medical treatment costs. The food and foodstuff index increased by 0.74% MoM due to Tet. Core inflation also rebounded and increased +3.07% YoY, from 2.85% in December. As inflationary pressure was primarily due to seasonal factors, we expect inflation to ease in coming months, thus supporting the State Bank of Vietnam (SBV) to maintain supportive monetary policy.

The depreciation pressure for the Dong eased in January despite stronger DXY, supported by a strong trade balance and inflows of remittances. The Dong appreciated by 1% against the greenback in the official market as well as in the unofficial market, over the expected decision of the FED to maintained its target interest rates range of 4.25-4.5% in January. Uncertainty over “back-and-forth” tariffs will continue to exacerbate volatility and place immense pressure on the Dong in the coming months. However, we maintain our confidence in the strength of the Dong this year following the country’s solid fundamentals, including firm trade surplus, resilient FDI inflows, and robust remittances. Remittance inflows maintained its high level of USD 16bn in 2024.

The VN-Index (VNI) declined in the first half of the month due to cautious sentiment ahead of President Trump taking office, before recovering ahead of the Tet holiday, attributed mainly to the rallies of bank stocks. VNI closed the month at 1265 (-0.1% in January). Foreign investors continued net selling for the month, similar to regional markets. They mostly accumulated bank stocks, including HDB (USD 16mn) and LPB (USD 14mn). ETFs continued to experience outflows of around USD 24mn in January. The rally of bank stocks could be predicated on (i) their attractive valuation, and (ii) improvement in their fundamentals.

The valuation of the VN-Index remains reasonable and relatively attractive at 13.4 times trailing earnings given the prospect for 2025 earnings growth of 15 – 16% YoY, and expectation of emerging market upgrade. Looking ahead, we believe that the market might focus on listed firms’ financial targets for 2025. We remain bullish on bank stocks due to (i) possibly stronger credit growth in 2025, (ii) and (ii) well-controlled asset quality. Besides, the industrial park sector could attract the market’s attention due to resilient FDI inflows into Vietnam and expansion of manufacturing sector.