Vietnam - Rising Emerging Market in Asia
Chief Investment Office - Hong Kong12 Apr 2024
  • Vietnam’s economy has been growing at 7% before the pandemic, and is expected to resume its growth path as it benefits from global supply chain diversification and the China+1 strategy
  • Long-term prospects of Vietnam’s economy are positive after several reforms post crisis; it is expected to join the ranks of other countries in the region in terms of size and growth. Its GDP growth is next to India’s and size of the economy is catching up to Singapore’s.
  • FTSE has placed Vietnam in a watchlist for a possible upgrade from Frontier to Secondary Emerging market status in the upcoming September review; Vietnam aims to be on MSCI’s watchlist by 2025
  • Current low valuations and market cap to-GDP ratio make it a clear investment destination with high growth potential
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Vietnam’s recent popularity as an investment destination continues to grow. Amid geopolitical tensions and as businesses adopt strategies aligned with China+1, Vietnam is believed to be in a good position to benefit from these supply chain shifts. In 2022, the country was a key recipient of foreign direct investments (FDI) to ASEAN, attaining an amount almost on par with Indonesia and Malaysia. Vietnam’s economy has been growing at an average of 7% in the five years before the pandemic, and its rapid growth is forecast to resume at 6% in 2024 and 6.8% in 2025. Vietnam’s GDP size briefly overtook that of Singapore’s in 2020, but on a sustainable basis, it looks set to overtake Singapore by 2025 after recording spectacular growth in the past few years.

Vietnam is not yet rated as an emerging market in global benchmarks. Vietnam currently has the largest country weight in the iShares MSCI Frontier 100 ETF (FM), at 30%. Investment opportunities are available as the government continues to move forward with market reforms. Though currently not yet classified as an emerging market under international benchmark standards, Vietnam’s capital market has been a strong contender where it comes to its global inclusion within the next few years, considering the country’s proactive market reforms. Efforts include the continuous part privatisation of state-owned enterprises, removal of the 49% foreign-shareholding cap on public companies (other than industries deemed important to national security), easing of restrictions on strategic investors who want to buy at least 10% of a firm, and the introduction of legislation to manage the banking sector’s bad debts. These reforms should pave the way for the gradual liberalisation of the securities market to foreign investors who want to ride on its remarkable growth.

Stock market highlights. There are currently 399 listed companies on the Ho Chi Minh City Stock Exchange, the largest stock exchange in Vietnam. The VNINDEX (or Vietnam Ho Chi Minh Stock Index) reached an all-time high of 1536.45 in January 2022, and has been trading in a range of 1,000-1,300 in the past one year. It has proven to be more resilient than the MSCI ASEAN Index.

FTSE has placed Vietnam in the watchlist for a possible upgrade from Frontier to Secondary Emerging market status in the upcoming September review. The government has sped up work on the last few hurdles for consideration, which include the requirement for pre-funding, and an efficient mechanism to facilitate trading between non-domestic investors in securities that have reached, or are approaching, their foreign ownership limit. According to market reports, if successfully included in FTSE EM benchmark, Vietnam could attract about USD1.4bn inflows. It aims to be on MSCI’s watchlist by 2025, which should attract more flows.

Valuations are attractive. The Vietnam stock market is currently trading at 14.2x PE and 1.7x P/B. Vietnam’s market capitalisation is at USD266bn, which is equal to 0.7x of its GDP, making it a clear investment destination with high growth potential.

With crisis comes opportunities. Vietnam's growth trajectory has been marked by periods of both prosperity and downturn, mirroring its historical economic fluctuations and stock market performance. Following its economic opening in 2002, Vietnam grappled with formidable challenges, including soaring inflation rates, sluggish growth, significant devaluation of its currency (the VND), and the looming threat of a balance of payments crisis. The swift pace of liberalisation post-WTO accession, coupled with difficulties in managing internal imbalances and an overdependence on the US export market during the global financial crisis, exacerbated the economic turbulence during this period.

In 2022, Vietnam encountered its own property crisis after the real estate market enjoyed rapid expansion. The emergence of the pandemic shifted buyer sentiment from optimistic to cautious, and the situation deteriorated as Vietnam navigated the pandemic aftermath and grappled with economic fallout from the Russia-Ukraine conflict. However, unlike China, Vietnam's property sector was not heavily reliant on international borrowing, and the economy continued to attract significant FDI as a key beneficiary of China+1 strategy.

The continuous reform efforts undertaken by Vietnam following these crises have contributed significantly to shaping the country's current landscape. Vietnam continued its commitment to economic liberalisation and integration into the global economy, and is beginning to outperform many regional peers. Moreover, policymakers are now focusing on longer term economic stability and sustainability. The long-term prospects of this economy are positive, and in terms of the size and growth of the economy, Vietnam is expected to join the ranks of key economies in the region.


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