June 2024 Macroeconomic & Stock Market Highlights for Vietnam

We would like to present you our monthly Macroeconomic & Stock Market Highlights for Vietnam alongside with the monthly performance update of the TIM Vietnam Actively Managed Certificate for June 2024.

Vietnam’s Update – Economy

• Vietnam recorded a strong GDP growth of 6.9% in the second quarter of 2024, a significant acceleration from 5.7% in the previous quarter and underscoring sustained economic momentum. The manufacturing and the service sectors were the growth drivers, contributing 37.0% and 43.3% of GDP, respectively. Manufacturing activities expanded by 8.3% y/y, buoyed by a robust 9.5% y/y increase in Industrial production. The service sector also saw significant growth, rising by 7.1% y/y, propelled by a resurgence in tourism. The agricultural sector, contributing 10.4% to GDP, grew by 3.3% y/y. Agriculture exports were particularly notable with a 20.5% y/y increase in the first half of 2024, poised to set a new annual record. Overall, Vietnam’s economy expanded by 6.4% y/y in the first half of 2024, surpassing our earlier projections of a 5.8% y/y growth.
• Trading activities demonstrated a robust performance in the first half of 2024, with exports and imports increasing by 14.5% and by 17.0% y/y, respectively, resulting in a trade surplus of $11.6 bn. Key export products such as electronics and textiles, continued to be the main growth drivers. June also saw a notable return to a substantial trade surplus of over $2.9 bn, following a small deficit of $0.5 bn in May as exports rose strongly. In all Q2, imports outpaced exports, primarily driven by increased purchases of raw materials and equipment, reflecting growing manufacturer confidence and global order resurgence. Looking ahead, expectations point towards even stronger export figures towards year-end.
• The PMI for Vietnam surged sharply to 54.7 in June, up from 50.3 in May. The index results not only indicate improved health of the manufacturing sector throughout the second quarter but also suggest significantly strengthened business conditions. The improved business conditions primarily reflect a notable increase in both production output and new order volumes.
• Retail sales remained robust and rose by 9.1% y/y in June and by 8.6% y/y in H1/2024. Although domestic consumption remained quite sluggish, the return of international tourists was the main driver here. The country welcomed 8.8mn international visitors in H1/2024, a significant increase of 58.4% y/y. What is more, the number of international tourists was 4.1% higher than the pre-COVID level. Koreans were the major contributor with nearly 25.8% of all tourists. But the Chinese also returned and and accounted for 21.4% of all tourists. Regarding domestic consumption, we anticipate some positive effects in the near term. The upcoming salary reform, effective from July 1st, with a notable 30% increase in salaries for public workers, is poised to stimulate spending. Furthermore, the extension of the 2% reduction in the value-added tax (VAT) until the end of 2024, approved during the latest National Assembly session, is expected to support consumption throughout the remaining quarters of this year.
• Regarding the government’s salary reform for the public sector, the key is a 30.0% increase in the base salary, effective from July 1, 2024. This aims to narrow the income gap to the private sector: Civil servants currently earn a monthly average of about USD 255 (according to the Ministry of Labor), significantly less than their private sector counterparts (USD 430-470 according to our surveys). Additionally, a new measure allocates 10.0% of the whole salary fund for bonuses to incentivize productivity, enhance work efficiency, improve worker satisfaction and, potentially, reduce incentives for corruption. This reform tries to capitalize on similar models from Japan and Singapore. In terms of funding this reform, significant components include streamlining from the workforce, and a 10.0% reduction in recurring expenses, indicating the government’s focus on reviewing and optimizing its operational efficiency.
• FDI disbursement in the first half of 2024 totaled $10.8bn, increasing by 8.2% y/y, reaching the highest level since 2012. Registered FDI also saw substantial growth, rising by 13.1% y/y to reach $15.2bn. Notably, June recorded a significant milestone with $4.1bn registered FDI, reflecting a robust increase of 59.7% y/y. Investment in the high-tech sector saw several positive developments in June, highlighted by significant investments. Notably, tech giant Foxconn announced a $383mn investment to build a new factory for its motherboard production. Additionally, U.S.-based Amkor Technology Inc., specializing in semiconductors, accelerated its plans for Vietnam with an additional $1.1bn investment.
• The government disbursed nearly $9.6bn in 6M/2024, up by 3.5% y/y, however completed only 33.8% of the full year plan. Disbursement growth was notably driven by the two largest cities, Ha Noi and Ho Chi Minh, which saw increases of 25.3% y/y and of 16.4% y/y, respectively, together making up 89.4% to the total disbursement growth. Construction activities at major projects remained on schedule, with expectations for acceleration in the upcoming quarters.
• In June, the country’s Consumer Price Index (CPI) rose by 4.3% y/y. Food and foodstuff, constituting one-third of the CPI basket, continued to be the primary drivers with a 4.7% y/y increase, largely attributed to elevated pork prices stemming from the African swine fever. Accommodation and construction materials, accounting for 18.8% of the basket, saw a 5.6% y/y rise, driven by ongoing increases in household electricity costs due to elevated demand during hot weather periods. Looking ahead, we anticipate sustained inflation pressures in coming months as higher hog prices should begin to affect dining out services, while the potential impact of the salary reform for public workers could also influence prices.
• The Vietnamese Dong (VND) remained unchanged in June, but depreciated by 4.6% against the US Dollar (USD) in the first half of 2024. The State Bank of Vietnam (SBV) took proactive measures to intervene in the FX market, including selling USD reserves of over USD 1.5bn in June to support the VND, cumulating to USD 5.5bn YTD. Simultaneously, the SBV increased the issuance volume of T-bills and raised the T-bill interest rate by 25bps to reduce excess liquidity in VND, causing higher interbank interest rates. This move aimed to narrow the interest rate differential between the VND and the USD. Consequently, Vietnam’s interest rates are expected to rise further to mitigate outflow pressure. In June, commercial banks continued to raise deposit rates by 20-40 bps across various tenors, with expectations of another 100 bps increase by yearend.
• In June, Vietnam was actively involved in significant diplomatic engagements with key strategic partners. It started with the visit of Russian President Putin, during which at least 11 cooperation agreements were signed, covering education, energy, and science and technology. Shortly after, Vietnam hosted US Deputy Secretary of State Daniel Kritenbrink, underscoring mutual respect for Vietnam’s foreign policy. Concurrently, the US Treasury Department affirmed that Vietnam does not manipulate its currency. Additionally, Prime Minister Pham Minh Chinh visited China to attend the World Economic Forum, advocating for cooperation and for the support for Vietnam’s infrastructure development. These developments underscored Vietnam’s balanced foreign policy approach with multiple nations, creating opportunities for increased investment and economic support.

Vietnam’s Update – Stock Market

• In June, the VN-Index, reflecting the Vietnamese stock market, fell modestly by 1.2%. The index rose in the first half of the month, but then declined towards the end of the month, especially in the last day of the quarter as passive funds rebalanced their portfolios, which caused most of the decrease. The sluggish performance can be attributed to a period of limited new information in June, as investors awaited macroeconomic indicators and second-quarter business performance reports from corporations. Additionally, the continuous strengthening of the USD exerted pressure on foreign inflows.
• The average daily trading volume on the three bourses improved by 5.1% m/m to $1.0 bn. Foreign investors remained net sellers, with total sales reaching $660 mn month-to-date (MTD), resulting in year-to-date (YTD) net sales $2.1 bn. The selling pressure from foreign investors primarily targeted blue-chip stocks, driven by passive money in ETFs, benchmarked against major indexes such as FTSE. The VnDiamond ETF fund for example experienced net outflows. Additionally, the liquidation of iShare ETFs by Blackrock, following the discontinuation of the Frontier Market Index fund, contributed to the negative trend. However, the outflow from foreign investors was offset by strong inflows from domestic investors.
• Sector sentiment diverged sharply during the period, with technology (+12.2%) experiencing significant gains for the second consecutive month following the FPT-Nvidia partnership. Industrial sectors (+2.6%) increased, driven by Vietnam Airlines (HVN +23.5%). Conversely, real estate (-2.9%) declined as Vingroup-related companies, which accounts for a major portion of the real estate index weight, continued their downtrend. Financials (-1.4%) also decreased after their strong performance earlier this year.
• Looking forward, we maintain a favorable outlook on the Vietnamese stock market thanks to improving corporate earnings and strong macroeconomic indicators. We view the headwinds from aggressive foreign selling and from anticipated higher deposit rates as temporary, and would use such challenges as opportunities to acquire stocks: Corporate earnings will be strengthening, political uncertainties have diminished, and concerns regarding power shortages have been addressed.
• As of the end of June, Vietnam’s Top 100 stocks were trading at a 2024F P/E of 11.9x, at a P/B of 1.5x, and at a 2024F EPS growth of 15.7%.

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Please download the June 2024 Factsheet for our TIM Vietnam Actively Managed Certificate. We are also offering investment advisory mandates and research services for the Vietnamese stock market. Furthermore, we offer our clients Discretionary and Investment Advisory Mandates for the purpose of investing in listed Vietnamese equities.

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