The manufacturing sector quickly recovered in October after being disrupted temporarily by Typhoon Yagi in September
IN BRIEF
The manufacturing sector regained positive momentum in October. The index of industrial production (IIP) increased by 4.0% month-over-month (MoM) or 7.0% year-over-year (YoY). The growth of employees in the manufacturing sector also posted a new high of 5.7% YoY in October. Trade activities, closely linked with industrial production, were solid in October with double-digit growth in both exports (up 10.1% YoY) and imports (up 14.6% YoY). Trade surplus amounted to USD 2.0 billion in October and USD 23.3 billion through the first ten months of the year. Meanwhile, the manufacturing PMI returned to expansionary territory at 51.2 after a sharp drop in September due to Typhoon Yagi. Both production output index (52.1) and new orders index (52.7) experienced growth although the pace of growth has been softer than seen in the months leading up to September. According to the report, some firms were still operating at below capacity because of the storm, which suggests potential for further expansion in the months ahead as these firms ramp up towards full capacity.
Foreign direct investment (FDI) remained robust in October with FDI disbursement over the first ten months of 2024 increasing by 8.8% YoY to USD 19.6 billion, which is the highest level in the past five years. FDI commitments also grew by 1.9% YoY to reach USD 27.3 billion. The processing & manufacturing sector continued to account for the lion share of total FDI commitments at nearly 63%, confirming Vietnam’s attractiveness as a production hub for multinational corporations. In contrast, public investment remained slow and has not seen significant improvement. Public investment rose slightly by 1.8% YoY over the first ten months of this year, achieving VND 496 trillion or only 64.3% of the full-year target with two months left.
Consumption remained soft in October, with retail sales increasing by 7.1% YoY down from 7.6% YoY in September. For the first ten months of 2024, retail sales grew by 8.5% YoY, which remained below pre-COVID levels of 10-12%. However, tourism was a bright spot as the number of international visitors recovered strongly 13.0% MoM and 27.6% YoY in October. Year-to-date, this number reached over 14.1 million, up meaningfully 41.3% YoY but still slightly below pre-COVID level in 2019.
October saw headline CPI rising 0.33% MoM, primarily due to an increase in food and catering services prices (up 0.55% MoM) and transportation prices (up 0.66% MoM). However, on YoY basis, headline inflation was merely 2.89% YoY in October, up slightly from 2.63% YoY in September. Thus, inflation averaged 3.78% YoY over the past ten months, still in check within the Government’s target range of 4.0% – 4.5% YoY for 2024.
October was a turbulent month for the foreign exchange market as the US dollar strengthened meaningfully with the DXY up 3.2% MoM. Stronger-than-expected economic data from the U.S. led to a recalibration of market expectations towards a more moderate pace of rate cuts by the FED. Uncertainty around the U.S. presidential election also added to the strength of the greenback. A sharply higher DXY in October exerted significant upward pressure on the USD/VND exchange rate, which rose 2.9% MoM. To stabilize the market, the State Bank of Vietnam (SBV) had to resume issuance of T-bills to increase VND interbank rates, and the Bank also announced its readiness to intervene further via its FX reserve. Despite the volatility witnessed in October, we still expect the exchange rate situation to improve in the coming months as the FED is expected to lower policy rates further while FDI, trade flows, and remittances into Vietnam remain solid.
The stock market took a breather in October as the VN-Index corrected 1.8% to end the month at 1,264. The tepid performance of the market can be attributed to (i) exchange rate pressure raising concerns about the SBV’s ability to maintain accommodative policies, (ii) mixed 3Q24 earnings results, and (iii) investors taking a cautious wait-and-see approach before the U.S. presidential election and FED meeting in early November. Excluding the 10% VIB divestment by the Commonwealth Bank of Australia and the 5% MSN divestment by SK Group, foreign investors were net sellers in October with total net outflows of over USD 170 million. Liquidity remained subdued in October with average daily trading volume of nearly USD 710 million.
From a sector perspective, the consumer, energy, and utilities sectors remained in the red in October, joined by the materials and real estate sectors. Meanwhile, the financials, industrials, and IT sectors held up better relative to the overall index. The financials sector, which holds the biggest weight in the VN-Index at 45%, saw mixed performance among the blue-chip banking stocks with VCB, VPB, and STB reporting gains while BID, CTG, and MBB losing ground. Household names in the consumer sector including MWG, VNM, and SAB declined as they reported weaker earnings growth in 3Q24.
The VN-Index is currently trading at a trailing P/E ratio of 14.8x, below its average P/E ratio of 17.3x over the past four years. Although the VN-Index could not breach the resistance level of 1,280-1,300 in October as we had hoped for, our bullish view on Vietnam’s stock market over the medium term remained intact. Stronger earnings growth in 2025, a better macro backdrop thanks to further rate cuts by the FED, and potential for market upgrade by FTSE will be the key supporting factors for the market, in our view.