Vietnam’s Bright Macroeconomic Outlook

The macroeconomic outlook of Vietnam is bright as the country has witnessed strong domestic consumption, received foreign direct investments (FDI) and maintained a surplus in trade balance with other countries. Vietnam’s real GDP growth is forecasted to exceed 8% in 2022.¹

Vietnam Real GDP Growth

^* YTD 2022 is the forecasted GDP growth rate by the World Bank.

Source: CEIC Data, Jefferies as of 9/1/2022.

In a time when other major world economies are curtailing fiscal and monetary policy support in an effort to contain inflation, Vietnam is in a position to support its growth. In January 2022, Vietnam passed a fiscal stimulus package of $15.4 billion at almost 4% of its GDP to support its 8 percent growth target for the year.² The stimulus is generally viewed as a positive for the country’s GDP growth trajectory for the year.

Vietnam’s currency and interest rates also appear relatively stable compared to other countries. The State Bank of Vietnam just recently started tightening monetary policy to contain inflation and plans to keep it at a target rate of under 4% this year.³ Vietnam’s contained inflation at around 4% and low borrowing costs with the central bank discount rate at 4.5% are supporting a domestic consumption rebound as COVID restrictions are easing.¹ A sharp recovery in personal consumption along with strong export growth contributed to the country’s impressive Q3 GDP growth of 13.67%.⁴ Vietnam’s strong macroeconomic position is expected to lift its population out of poverty as more than half of the Vietnamese population is projected to join the global middle class by 2035.⁵

Vietnam is generally also seen as a beneficiary of U.S.-China decoupling with multinational companies looking to diversify assets out of China. China’s zero-COVID policy appears to be aiding the production shift into Vietnam. The country has been able to remain attractive to foreign investors and received foreign direct investment (FDI) net inflows totaling U.S. $15.3bn in 2021, or 4.2% of GDP, up from 3.2% of GDP in 2013. We believe the strong FDI further solidifies the country’s macro outlook.

The country’s capital markets appear to be trading at attractive valuations given its strong macroeconomic outlook. Some asset managers expect growth in earnings per share (EPS) of around 20% in 2022 year over year⁶ and yet the Ho-Chi Minh stock index is down about 40% YTD⁷. Valuations may be attractive at this level, trading at only about 10x 2022 earnings forecasts.⁸

Vietnam’s market liquidity has also been improving over the last few years with average daily trading volume rising from U.S. $97 million in 2015 to U.S. $1 billion in 2021. There are now at least fifty listed stocks with a market capitalization of more than U.S. $1 billion, indicating the growth of the market.

Vietnam Stock Market Average Daily Turnover

Includes both Ho Chi Minh City and Hanoi stock exchanges. Source: Bloomberg Data.

Vietnam’s Ministry of Finance issued a statement about its focus on strengthening the infrastructure of the stock market and developing, diversifying and increasing the quality of products in the market.⁹ The regulators appear to be taking steps to increase corporate governance and upgrade critical financial markets infrastructure. Earlier this year, Vietnamese authorities cracked down on violations in equities, bond and property markets in an effort to establish proper control mechanisms to protect investors.⁹ Regulators also sacked the head of the country’s main stock exchange in order to strengthen corporate governance and transparency in its financial markets.¹⁰ Vietnam Securities Depository (VSD) recently made changes to the stock settlement cycle to speed up the trade settlement process.¹¹ VSD is also working to implement a new information technology system that will allow same-day trade settlement and help tackle system overload issues stemming from higher trading volumes. The system will enable regulators to implement meaningful reforms in derivative products, intra-day trading, short selling, foreign access, new listings and adherence to international reporting standards.¹²

Vietnam is currently on the secondary emerging markets watch list by FTSE Indices and could be added to MSCI emerging markets watch list in 2023.⁷ Vietnam’s regulators are vying for an upgrade to emerging markets status by global index providers. Vietnam’s Ministry of Finance has included this goal in the project ‘Restructuring the stock market and insurance market’ and the draft strategy is to help upgrade the stock market from a frontier market status to an emerging markets status by 2025.¹³

A key impediment to upgrading is foreign ownership limits (FOLs); typically, FOLs are government-imposed quotas on the percentage of foreign ownership in a company. If a company has reached its FOL, no further investment can be made by foreigners until the level of foreign ownership decreases; these companies are generally excluded from global indices as a result. There have been positive developments since September 2015. Companies are allowed to raise their FOL if they are not in a strategic sector as defined by the government. There are already some companies that have elected to do so. In general, foreign investors may, in aggregate, own up to 100% of a public company. Currently, the limit is 30% for bank stocks and 49% for most other companies such as in the telecom sector or sectors considered strategic by the government.¹ Vietnam’s regulators appear determined to help upgrade the country to emerging markets status. The State Securities Commission of Vietnam is working with global agencies such as the World Bank and FTSE as well as Vietnam’s ministries, associations and market members to address concerns on foreign ownership limits.¹⁴ 

The country’s regulators appear willing to make markets more accessible to foreign investors and boost the infrastructure support needed to run a healthy and functioning market. An upgrade to emerging markets status could potentially attract foreign active and passive asset inflows into the local Vietnamese market. VanEck Vietnam ETF (VNM) provides access to the growth story of Vietnam and could be an appealing investment for investors seeking growth exposure outside of traditional emerging markets. VNM, the largest and most liquid U.S.-listed Vietnam ETF provides investors one trade access to the Vietnamese market.¹⁵

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