Vietnam
Vietnam’s favourable demographics, entrepreneurial culture, and strategic location at the centre of the Southeast Asian trading hub, make the country one of Asia’s most compelling investment stories.
With a population exceeding 100 million and an average age of 33, Vietnam is the world’s 15th most populous country. Education is a top priority, with Vietnamese students achieving the second-highest PISA scores in the region. According to World Bank aggregate scores, they outperform peers in both developing economies like Malaysia and Thailand, and developed countries such as Britain and the US.
Since 2023, Vietnam has elevated its diplomatic relations to the highest level of Comprehensive Strategic Partnership (CSP) with the USA, South Korea, Japan, and Australia, adding to existing CSPs with India, China, and Russia. This ‘Bamboo Diplomacy’ successfully balances diplomatic and trade relationships between East and West, making Vietnam one of the world’s most trade-open countries.
Growing consistently at nearly 7% annually, Vietnam is rapidly transforming into an export powerhouse, advancing up the global value chain with a thriving domestic consumer market. As an investment destination, the country continues to offer extraordinary potential.
The Vietnam Index came out swinging
The VNI rallied 11.2% MoM to 1,111. Market momentum was up across a broad base of sectors on the back of strong foreign inflows, a welcome boost to retail investor confidence.
Some sectors hit it out of the park, some struck out
Earnings saw the banking sector lead the index with earnings growth of 22.2% YoY. However, internal divergence emerged between State and private banks due to private banks’ bond exposure, with SOCBs outperforming both the VNI and privates. Energy and Utilities also beat expectations with solid results. Conversely, the property sector posted poor results, as investors are unconvinced that headwinds have sufficiently calmed, evidenced by slow sales.
Sector rotation emerges on the back of infrastructure mega-budget
Public investment is in the spotlight with many important projects making progress, such as the construction of Long Thanh International airport. This quickly became a popular investment theme, helping boost positive sentiment. The main benefactors were infrastructure developers (up 20-35%) and construction materials sectors such as steel and cement (up 15-20%). Moreover, the Government is progressively pushing for the reform of Decree 65 to resurrect the bond market, increasing confidence in the future potential of the property sector.
Retail investors found comfort in foreign conviction and China reopening
Foreign net buying continued for the third consecutive month with $161m (or $304m excluding Eximbank block deals). Though buying pace was slower, it without doubt contributed to the market rally, despite the strong net selling from individual investors on heavily reduced margin of 30% QoQ. China’s reopening will also render an uptick in spending, supporting domestic consumption and feeding through to the tourism and services industries. As travel and demand statistics are slowly released, this will provide an extra layer of comfort.
Political maneuvering not dissuading retail
Weak 4Q22 earnings threw up no surprises, but investors chose to look forward believing the worst is behind them, buoyed by the anti-corruption drive finding the top and foreign inflows supporting the market.
Reading the tea leaves: More liquidity, less volatility
If the worst is indeed past, the salient question is at what pace earnings will recover, and what the index will look like in 2023? The answer to this lies in the Government’s acquiescence to market feedback on Decree 65 and the introduction of Circular 26. This is a positive move for capital markets, allowing the property sector to gain much-needed access to liquidity. This alleviates pressures on banks that now have 2023 credit limits of 14-15%, translating to a more stable systemic environment, pouring oil on the choppy waters of retail investor sentiment.
Services on the up, PMI exits stage left, pursued by inflation
The Year of the Cat opened to mixed reviews. New Year festivities helped the services sector’s ongoing recovery. Foreign visitors reached 870k, +23.0% MoM, pushing retail sales by +5.2% MoM, 20.0% YoY. However, industrial production decreased by 8.0% YoY due to a decline in new orders, with PMI of 47.4, the third consecutive monthly contraction. Trade reached $46.6bn in January, +17.3% MoM, while inflation rose 0.5% MoM, the highest January hike since 2016.
Policy to benefit banks, SBV supports healthy Dong
The Government continues to loosen monetary policies. The SBV set the 2023 credit growth target of 14-15%. Also released was Circular 26, amending the Loan-to-Deposit (LDR) ratio, including State Treasury bank deposits. With $5-6bn being considered for deposits into SOE banks, LDR will likely decline by 1-2%, which could incentivise inter-bank lending. The SBV bought approximately $3bn and injected an equivalent amount of VND into the market, thanks to strong inflows and a stable currency of VND 23,450/USD. As a result of better liquidity, rates cooled down from December by 25-50bps.
Government waves red flag at infrastructure bull
On the fiscal side, public investment has risen extensively in recent months, kicking off numerous key projects. Accelerated disbursement in 4Q22 meant total FY22 figures reached $22.9bn, completing 80.6% of the Government’s plan. This is a strong start after 2 years of sluggish momentum, and the 2023 carryover is critical to economic success. A budget of $32.2bn is an ambitious but achievable target, evidenced by the acceleration in 4Q22.
Bond market not out of the woods but MoF supplies the axe
In the fixed income market, there will be roughly $12.8bn of bonds maturing in 2023, most of which will be in the second and third quarter, raising rollover and default risks, potentially causing slower global demand to filter through to Vietnam. Currently, it appears that the main solutions to the corporate bond issue would be additional credit, deleveraging, and the liquidation of corporate assets. This, however, takes time. The Ministry of Finance has suggested changes to Decree 65, giving bond issuers the flexibility to postpone principal payments by up to two years, and the option to convert bond equivalent value to assets.
A smoother road ahead for Vietnam?
2023 will not be without its challenges. However, with the improvement of market liquidity and the relaxation of monetary policy, in sync with ramped-up public spending, we are already seeing more measured retail investor sentiment in the market. While domestic and global risks still remain, loosening Government policies can minimise their impact. This, encouragingly, could create opportunities in a more navigable domestic macro environment.