A new era of policy for performance: The evolution of Vietnam’s economy and capital markets

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Monthly Insights

Vietnam had mixed economic results in November. Export activities grew by 8.2% YoY, reaching $33.7bn, while imports rose by 13.6% to $32.6bn, resulting in a trade surplus of approximately $1.1bn. Industrial growth remained strong but decelerated slightly, with IIP up 2.3% MoM and 8.9% YoY, below Q3’s 10% average, partly due to Typhoon Yagi and trade uncertainties under Trump 2.0. Vietnam’s PMI softened to 50.5 from October’s 51.3, and YTD disbursed public investment reached 60.4% of the annual target, trailing last year’s 65.3%.

External pressures remain the primary challenge. A resurgence in US bond yields above 4.0% and a strengthening dollar has placed pressure on EM currencies, with the VND depreciating by approximately 4% YTD. US anti-dumping tariffs taking effect in January, ranging from 21.3% to 271.2% on Vietnamese solar panes and other S.E. Asian nations, while significant, were well anticipated due to the risks of transhipment from China and have had minimal direct impact on Vietnam. Nonetheless, Vietnam continues to attract substantial interest from multinational corporations. Notably, Nvidia CEO Jensen Huang made his second visit to Vietnam in a year and signed an agreement to establish AI R&D and data centres, which according to Huang will “advance Vietnam’s AI by building AI infrastructure, growing the number of AI experts in Vietnam and supporting AI startups“. This is expected to further strengthen Vietnam’s position in the global tech value chain and attract additional high-tech investment, fostering the development of the AI ecosystem and technological capabilities.

The National Assembly’s recent session was highly productive and successfully enacted 18 laws and 21 resolutions to enhance economic stability and growth. It passed two key pieces of legislation: the amended Securities Law and the revised Public Investment Law, which introduce new provisions to decentralise decision-making, clarify ambiguities, and address regulatory challenges. The session also extended the 2% VAT reduction to mid-2025 and agreed to implement the Investment Support Fund to mitigate impacts from the global minimum tax. As part of the government’s broader reform agenda, we have pinpointed three key areas of focus: digitalisation and technology, infrastructure development (crucial for attracting continued FDI), and most importantly, restructuring the administrative and legislative systems to enhance efficiency. These initiatives underscore Vietnam’s dedication to macroeconomic development and stability, effective inflation control, while pursuing a GDP growth target exceeding 7% for 2024, with aspirations to surpass that in 2025.

The VNI faced significant volatility, driven by heightened foreign net selling, which peaked at $577mn amidst concerns over Trump’s trade policies, tapering to $540mn by month-end as valuations hit notably low levels. Unlike the 2018 trade war, when inflated valuations and new listings exacerbated risks, the current market has likely priced in multiple uncertainties. By November’s close, the VNI was trading at a T12M PE of 13.7x and a 2024F PE of 11.8x, well below the 2018 average of 19.0x and the 5-year average of 17.1x, with 2025 forward PE of approximately 10x. While external risks may persist, Vietnam’s internal growth drivers and the government’s push for modernisation are promising. We believe the speculation surrounding the resumption of the KRX trading system is plausible, which, if realised, would couple the establishment of a CCP, paving the way for international market standards, shortened settlements, and new products. Significant progress towards a FTSE Secondary EM upgrade is also expected to attract substantial investor interest and capital inflows.