Vietnam’s principal indices returned almost 10% in 2024, supported by a sturdy financial backdrop and company reforms which have translated into renewed danger urge for food for the asset class. Regardless of disruptions attributable to highly effective Hurricane Yagi in September, the economic system expanded by 7.4% throughout Q3 2024, exceeding authorities estimates, which forecast development between 6.8% and seven% for the 12 months.
The financial efficiency not solely demonstrates a restoration from weather-related setbacks but additionally highlights underlying resilience. Q3 commerce turnover elevated by 19%, whereas overseas direct funding (FDI) reached $17 billion, in line with Hung Nguyen, senior economist at Dragon Capital, Vietnam’s largest fund supervisor.
“The economic system is shifting gears and grabbing world consideration,” Nguyen stated. Tech giants are rising their footprint as ongoing industrialisation advances the nation’s manufacturing capabilities. Moreover value benefits, Vietnam can also be the first recipient of multinational firms adopting ‘China + 1’ methods, the place these related to US companies are diversifying their manufacturing dependence past a single nation.
The funding pivot from China to Vietnam has occurred with out damaging diplomatic relations between Beijing and Hanoi. China stays Vietnam’s largest buying and selling companion and essential supply of producing imports. Bilateral commerce grew by 21% within the first three quarters in comparison with the identical interval final 12 months, reaching $148 billion.
Vietnam is attracting not solely rudimentary industries but additionally subtle producers that require extremely expert employees to deepen their presence, thereby serving to the nation transfer up the manufacturing worth chain.
The introduction of latest tax subsidy schemes, such because the New Digital Trade Legislation anticipated to be handed in June 2025, will present an institutional and monetary framework to incentivise large-scale tasks in semiconductors and knowledge centres. And not using a complete nationwide framework, most funding instances are dealt with on a case-by-case foundation, which is much less environment friendly, Nguyen defined to FinanceAsia.
Cautious method stays
Hanoi’s success coincides as relations between Washington and Beijing have soured. Using a technique of Bamboo Diplomacy, a time period underscoring a versatile overseas coverage that embodies the traits of the indigenous plant able to bending in a number of instructions with out breaking, Vietnam is navigating by way of geopolitical intricacies that different nations have additionally confronted.
“Whereas most are pressured to select a facet, Vietnam has managed to place itself as a reliable companion to the financial rivals,” stated Ismael Pili, head of institutional gross sales at Ho Chi Minh Securities Company, in a dialog with FA.
Nonetheless, regardless of the funding tailwinds and harmonious relationships with the world’s two largest economies, Pili says that fund managers stay cautious, as uncertainties surrounding commerce tariffs and their implications hold over the area. At the same time as Vietnam presents itself in its place hub to China, its present account surplus with the US attracts undesirable consideration, making it a sufferer of its personal success, he explains.
Among the many unintended penalties is the criticism that Vietnam is transhipping items to bypass tariffs on Chinese language merchandise, with almost completed objects imported solely to be shipped overseas to keep away from a ‘Made in China’ label.
Hanoi is growing a scientific framework to higher monitor these accusations, defined Dragon Capital’s Nguyen, including that Vietnam’s Ministry of Trade and Commerce is collaborating intently with the US Division of Commerce to expedite an settlement addressing rule of origin issues.
Funding implications
Given the mixing of Asia’s provide chains, commerce tariffs anyplace might hinder new capital from flowing into the area. “With Trump’s return to the presidency, his administration could favor a transactional method to realize early wins, leveraging tariffs or different financial instruments to pursue US pursuits,” Nguyen famous, including that the Trump administration might even tighten its restrictions additional.
These issues aren’t with out precedent. Throughout his first time period in workplace, president Trump categorised Vietnam as a foreign money manipulator, which was a largely symbolic designation. Plans to accuse different Asian exporters of unfairly devaluing their currencies might sign the brand new administration’s priorities in searching for commerce offers as early wins.
Amid these uncertainties, the onus for incremental investments will fall onto company reforms and market developments in Hanoi to attract in overseas capital. Ranked as a FTSE frontier market since 2018, Vietnam hopes to be reclassified as an rising market someday in 2025, a transfer that ought to improve market liquidity by passive funds monitoring the worldwide benchmark.
Ho Chi Minh Securities’ Pili famous that though passive funds bode properly for the market, buyers are nonetheless on the lookout for future earnings potential, which might be hindered by elevated competitors for expert labour and unreliable energy provides.
Elevated family financial savings charges replicate the present reluctance to spend whereas the legacy of the anti-corruption marketing campaign can also be prompting firms to turn out to be extra risk-averse, whilst financial easing has lowered borrowing prices for brand spanking new capability.
That may probably maintain the market unstable in 2025. Though Vietnam could also be one of the best positioned to climate the geopolitical storm, it may be essentially the most weak as properly.
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