Investors who want to tap into Vietnam’s growth story now have a choice in the form of the United Vietnam Equity Fund (UVEF). As of July 2023, it was the only local unit trust fund dedicated to investing in the country, said Lim Suet Ling, CEO of UOB Asset Management Malaysia, while interacting with International Finance.

Investors have plenty of reasons to put their money into Vietnam’s growth journey. ASEAN as a region is emerging as the world’s fourth-largest economy in the coming decade, with 70% of its population joining the middle class with a consumer market worth USD 4 trillion (RM18 billion), according to the World Economic Forum’s forecast. Vietnam will be one of the main beneficiaries riding this trend.

The “China Plus One Strategy,” which sees multinational companies moving parts of their supply chain from China to other countries due to its geopolitical tension with the United States, is another factor that could benefit ASEAN in the coming days.

Market players are already seeing foreign direct investments (FDI) flowing into ASEAN. And Vietnam is one of the largest recipients.

“Vietnam stands out in ASEAN, thanks to its strong economic growth and improvement in the business environment in recent years,” Lim stated further, while pointing out that the Southeast Asian nation received the second highest absolute inflows of FDI among ASEAN countries in 2023 at USD 23.2 billion.

The country that received the largest FDI inflows in absolute terms was Indonesia (USD 45.6 billion), followed by Vietnam, Malaysia (USD 16.2 billion) and Thailand (USD 12.3 billion).

Vietnam: An Emerging Economic Powerhouse

Vietnam is geologically well positioned as it shares long borders with China and maintains proximity with Japan, South Korea and Taiwan. The Southeast Asian nation’s location is convenient for suppliers, based in their respective home countries, to provide manufacturers located in Vietnam with the necessary products and services.

The country has a long coastline with several seaports and it has signed 15 Free Trade Agreements (FTAs) with its major trading partners to facilitate import and export activities.

Demographically, 58% of Vietnam’s population is of working age, which provides the country with an abundant skilled workforce associated with low labour costs. It has also moved up 12 places in the Economist Intelligence Unit’s (EIU) business environment ranking recently and has seen improving infrastructure and business innovation, she adds.

On 29th February 2024, the Vietnam Ho Chi Minh 30 Index rose 11.87% year-to-date (in VND). The index is a market cap-weighted index of the 30 stocks with the highest market cap and liquidity on the Vietnam Ho Chi Minh Index. By February 2024 end, United Vietnam Equity Fund delivered a YTD return of 8.90% (in MYR Hedged Class). For a three month period (i.e. 30.11.2023-29.02.2024), the Fund is up 10.96% (in MYR Hedged class).

A Solid Track Record

While interacting with International Finance, Lim Suet Ling, CEO of UOB Asset Management Malaysia, said that the UVEF is managed by professional fund managers with a solid track record of investing in Vietnam.

The key investment decision-maker for the fund is Le Thanh Hung, investment director at UOBAM Vietnam Co. Earlier; he was the CEO and investment director of CNAV, a joint venture between the National Bank of Canada (NBC) and Montreal-based financial institution CTI Capital. He managed the CNAV’s Vietnam Focus Fund (which belongs to NBC) from April 2008 to January 2015.

During January 2015, when the Vietnam market had yet to experience an economic boom, which it is going through today, the CNAV Vietnam Focus generated a total return of 10.58%, outperforming the Vietnam Ho Chi Minh Index of -32.82%. CNAV Vietnam Focus’ annualised return since inception was 1.47% while the Vietnam Ho Chi Minh Index did -5.6% on an annualised basis.

On Hung’s watch, UVEF pursues a “flexible investment style” that swings between small- and mid-cap growth stocks and large-cap value stocks, depending on the stock market cycle and movement, said Lim.

“During a bull market, we tilt towards small- and mid-cap growth sectors and stocks to capture the strong growth momentum. During a bearish market, we overweight large-cap and value stocks to protect portfolio value,” she stated further.

Lim also noted that the State Bank of Vietnam, the country’s central bank, cutting its interest rates, while the Southeast Asian country’s government is speeding up public investment and spending. The nation’s stock market has recovered strongly as a result, with the return of more retail investors.

Vietnam also strategically prioritised semiconductor manufacturing, fostering closer relationships with key partners like South Korea, the United States, and Japan. Industry giants like Samsung, Amkor, Marvell, Synopsys, and Hana Micron have pledged substantial investments to expand their operations in Vietnam.

Against such backdrops, UVEF emphasises sectors and stocks exhibiting robust growth prospects. These sectors include telecommunication, industrial parks, materials, and construction. Additionally, investments have been made in brokerage firms poised to capitalise on a buoyant stock market.

Furthermore, UVEF favours the Banking sector, which stands to gain from favourable funding costs amidst a low-interest rate environment. The Fund also selects some leading export names that benefit from export recovery momentum in 2024. UVEF has also adopted a cautious stance towards the property sector, which continues to grapple with liquidity challenges amid subdued transactional activity.

As of 29th February 2024, the top five holdings of UVEF are the Bank for Foreign Trade of Vietnam (9.27%), Viettel Construction JSC (6.44%), Hoa Phat Group JSC (6.30%), Vietnam Joint Stock Commercial Bank for Industry and Trade (5.70%), and Gemadept Corp (5.61%).

However, Lim said that UVEF investors should be prepared for volatility as the Vietnam market is dominated by retail investors, with their transactions accounting for 85% to 90% of the daily transaction value. The sentiments of retail investors can be easily swayed by news and rumours.

“Foreign exchange volatility is another factor that investors should watch out for. Although the dong (VND) has been quite stable against the US dollar in the recent decade, investors cannot rule out the possibility that the situation might change as the US Federal Reserve raises interest rates further,” she noted further.

“Also, Vietnam’s real estate sector is struggling from oversupply in certain market segments,” Lim said, while adding, “UVEF manages the risk via diversification by investing in a minimum of 40 stocks across sectors and adopting a flexible investment style that swings between smaller-cap and large-cap stocks, depending on the market cycle.”

“As for foreign exchange rate fluctuation, there isn’t any hedging tool available in the Vietnam market. Yet, as we mentioned, the VND has been quite stable against the USD in the recent decade. And we do not see any event that will make such a situation change,” Lim remarked.

In her concluding statement on the future prospects of the Fund, the senior official said, “Maintaining foreign currency exchange rate stability is one of the essential targets of the State Bank of Vietnam and its government to support the economy. It is vital in attracting FDI inflows. And FDI plays an important role in Vietnam’s economy as it contributes about 20% to Vietnam’s GDP and 75% of its export turnover.”

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The COVID-19 pandemic has helped the Southeast Asian economy recover, but it has recently faced several difficulties, including declining global demand and a rising dollar.

This year, the central bank increased its policy rates by 200 basis points while allowing the dong to depreciate versus the dollar.

Over the previous three months, the dong currency has lost 6% versus the dollar, while Vietnam’s stock market (VNI) has dropped by more than 20%.

The macroeconomy is becoming harder to manage, according to PM Pham Minh Chinh. So we must be on the lookout for threats, but we won’t panic.

Vietnam’s gross domestic product is predicted to increase by 8% this year, faster than the 2.58% growth seen in 2017. This year, the nation wants to keep inflation at a 4% maximum.

According to PM Pham Minh Chinh, the country would “pursue an active, prudent, flexible and sturdy monetary policy in harmony coordination with fiscal policy and other policies, without abrupt changes.” He also noted that the real estate market is experiencing liquidity issues.

“The bond and stock markets now bear risks after a period of strong growth, with businesses having a high demand for capital for production while banks’ credit is tight,” PM Pham Minh Chinh told the legislature.

With commercial banks under pressure from tightening loan conditions and rising interest rates, the central bank of Vietnam conducted impromptu meetings with them this week to discuss liquidity in the system.

PM Pham Minh Chinh said that the government would ensure that the financial and real estate sectors work better and are more open.

“The government will propose amendments to securities and enterprise laws and related regulations,” PM Pham Minh Chinh added.

He added that hundreds of gas stations have had to close or reduce sales in response to a fuel shortage in recent weeks, claiming financial hardships and limited domestic supplies.

PM Pham Minh Chinh declared that Vietnam would consider increasing its national fuel production and storage capacity to prevent future gasoline shortages.

Photo Credit: Viet Nam Government Portal

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The economy of Vietnam would continue to improve in August, according to the report, which was obtained by the Vietnam News Agency (VNA).

In the third and fourth quarters of this year, the bank kept its prediction for Vietnam’s GDP growth at 10.8% and 3.9%, respectively, bringing the full-year growth to 6.7%.

Tim Leelahaphan, Standard Chartered’s Thailand and Vietnam economist, predicted that the recovery will pick up speed significantly. But he also issued a warning about how rising oil costs could harm the economy of Vietnam.

According to the survey, retail sales are predicted to increase significantly in August, rising by 60.2% from 42.6% in the preceding month.

HSBC experts also projected that Vietnam’s economy would continue to grow despite a less optimistic external outlook.

Exports of clothing, footwear, and textiles increased by 30% from a year earlier. When compared to the same month last year, retail sales showed a record growth rate of nearly 55% last month. Particularly, the revenue of industries connected to tourism was significant, with double-digit growth for four straight months.

Additionally, in July, Vietnam welcomed over 350,000 foreign tourists, more than triple the monthly average in H1 and boosting Vietnam’s overall visitor figure to more than 1 million. Nearly half of the overall number came from people in the US, Europe, and the Republic of Korea.

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In 2020, economies across the world were battered because of the pandemic. However, Vietnam’s economic performance in 2020 caught global attention. Vietnam was the top-performing Asian economy last year, and according to government estimates, the Vietnamese economy grew by 2.9 percent year-on-year. What’s remarkable is that while some of the biggest economies were battling recessions, Vietnam did not report a single quarter of contraction, a period plagued by lockdowns, border closure and economic distress.

Interestingly, in the last decade, Vietnam achieved impressive yearly GDP growth of six percent or higher, reaching a 10 year high of 7.1 percent in 2018. Once known as one of the poorest economies in the world, Vietnam’s current impressive growth counters China. Top brands such as Nike and Samsung have established their manufacturing hubs in the country. So how did Vietnam achieve this remarkable feat? Vietnam reached its current peak through a series of social and economic reforms, liberalisation, domestic reforms through deregulation and investments in human and physical capital.

The new leadership in place has a daunting task in their hand. Not only they need to maintain Vietnam’s impressive economic growth but they need to steer the economy through a pandemic. Earlier this year, World Bank released reports acknowledging Vietnam’s transition from centrally planned to a market economy and is recognised as the most dynamic emerging country in the Southeast Asia region.

The World Bank’s data from 2002 to 2018 proves that the GDP has increased 2.7 times, yet, Vietnam reported per capita income to be $2,700 in 2019. Vietnam took initiatives to alleviate poverty from 70 percent to less than six percent during this period, a remarkable achievement. Vietnam’s impressive economic growth has been facilitated by export-oriented manufacturing and the resurgence of domestic demand. The country has a considerable number of young people population with a life expectancy of 76 years. According to the World Bank, about 26 percent of the population will be from the middle class by 2026.

Vietnam under new leadership
Newly appointed Prime Minister Pham Minh Chinh has prioritised the transformation and development of Vietnam’s economy to a digital-based economy. The Resolution of the XIII Congress of the Party has revealed the blueprint for the new regime that seeks to transform the economy by undertaking six key tasks and three strategic breakthroughs. Under the leadership of China, Vietnam will invest in science and technological development and create a more conducive environment for business development as well as for manufacturing concerns.

PM Chinch’s have prioritised national defence, sovereignty, territorial integrity, social order and safety amid unstable situations in the South China Sea. However, the bigger task in the hand of the newly elected prime minister is to lay down a constructive plan to build on recess success and develop Vietnam into a modern state with a fully developed economy in league with countries like South Korea, Japan and the western countries.

It will prove to be monumental and such transition will need to be guided by the vision of the new leadership and has to be aided by suitable economic and social developmental policies. While the current political leadership needs to kickstart the gargantuan project, the chances are high that the targets won’t be achieved in its lifetime. Therefore, PM Chinh would also need to oversee the commencement and successful implementation of the Five Year Economic and Social Development Plan (2021-2025) and the Ten Year (2021-2030) Economic and Social Development Strategy.

Institutions such as the World Bank and International Monetary Fund (IMF) expressed their belief that Vietnam is pacing towards a more open and competitive economy. They also appreciated the steps taken to increase diversifying its economic relationship with various countries across the world. As a result, despite the pandemic, Vietnam showed an impressive economic growth of about three percent in 2020.

The senior party leadership also agrees that the high growth rates pave the way for better living standards for the population. Thus, it is vital for them to work towards better economic management and integrate the country into the global supply chains. Furthermore, the new regime provide structural and institutional support for the private sector that boosts the country’s economy, Vietnam can be expected to adhere to its 2016-2020 economic reforms blueprint that outlines favourable conditions for the private sector.

Plans going forward
While addressing the nation in his first speech, Prime Minister Pham Minh Chinh stated that he would protect the sovereignty and independence of the country. At the same time, he also wanted to maintain the anti-corruption drive to cleanse the economy to provide a better niche for growth and investment. Along with Finance Minister Ho Duc Phoc, the Prime Minister has formulated strong fundamentals to boost Vietnam’s economic development and improve productivity.

The macroeconomic policies can support the active labour market and provide job training and a structural social safety net to address social and economic issues. Doi Moi, the economic reforms initiated after 1986 are afoot to provide better avenues for growth and active participation of the private sector to help build Vietnam as a sturdy economy of East Asia.

Vietnam is viewed as a middle-income country that has developed a small and medium enterprises economy. It has records of working on its disinvestment policies and implementing various multilateral and bilateral agreements that it had signed in the past two years. The government of Vietnam has always shown efforts at multiple levels for liberalising the Vietnamese economy and improving its trade with the US and the EU markets because the benefits from those economies would be of large volume and would trickle down to the different sectors of the economy. Reports on the economy of the country state that it witnessed a growth of about 4.5 percent in the first quarter of 2021, marking an increased trade with the US.

Thus the priority of the new leadership will eventually be focused more on the economy of the country. The government is also focused on improving English proficiency among entrepreneurs and easing foreign direct investment procedures in different provinces. In addition, commitments are made to build a better technological ecosystem that would provide capital and skilled labour for the network to thrive.

Urbanisation and strong economic fundamentals are also increasing. The new leadership is also seen preparing to address challenges like waste management and support green technologies to address pollution challenges. Financial institutions also acknowledge Vietnam as a country that has graduated from an agriculture-based economy to a modern economy. This will boost the living standards due to substantial foreign investment and sufficient current account surpluses.

Fighting the virus in 2021
Vietnam not only successfully navigated the pandemic on the economic front but also when it comes to the spread of the virus in the country. So far, Vietnam has recorded around 13,530 cases of Covid-19 in the country, with 69 deaths. This is attributed to strong economic fundamentals, decisive containment measures and well-targeted government support. Vietnam introduced containment measures with the help of aggressive contact tracing, targeted testing, and the isolation of cases suspected of Covid-19 infection. These swift moves of the government helped to maintain low recorded rates of infections and death rates on a per capita basis.

The newly elected government prioritises vaccinating its population against Covid-19 and preventing the spread of the virus in a working space. By accelerating the vaccination rollout, Vietnam can sustain growth, prevent a decline in income and economic conditions and at the same time prevent the pandemic from affecting consumer spending behaviour and lifestyle in the long run. However, Vietnam estimates that it would take around $1.1 billion to procure sufficient Covid-19 vaccines to inoculate the entire population.

The vaccine expense will further strain the state’s budget. Vietnam’s Ministry of Finance had already stated that it has managed to allocate about $608.9 million and will need $487.1 million to buy the required jabs. Thus, in order to help the country procure vaccines, Vietnam launched a public fund in early June. Many see the Covid-19 Vaccine Fund as a timely and suitable initiative of the government to mobilise resources available to fight against the virus.

Bank transfers, various channels, and an official website for the National Covid-19 Vaccine Fund are introduced to receive donations from individuals, businesses, and organisations in Vietnam and abroad. The fund would exceptionally ease the limited state budget and financially back the country to import, research, manufacture and distribute vaccines. To maintain growth, the government has promised to pay attention to attracting foreign direct investment through multilateral relations and take advantage of the bilateral and multilateral agreements the country has signed in the past.

Vietnam’s growth outlook optimistic for 2021
Despite mass vaccination programme underway in many places, Covid-19 cases are rising globally, and a fourth wave is looming large. Vietnam prided itself from keeping Covid-19 cases very low until now. Cases are rising alarmingly in Southeast Asia compared to Europe or the Americas. Yet economists predict that the GDP growth will exceed 6.5 percent in 2021 as a result of an increase in industrial production and global economic recovery. Towards the end of 2021, the domestic production sector in Vietnam can also expect a 17 to 18 percent surge as the manufacturing and processing rates are soaring.

The industrial production index in the first five months of 2021 was at 9.9 percent year-on-year, and the manufacturing and processing were at 12.6 percent. Total retail sales of goods and services reached 7.6 percent year-on-year. From a bigger picture, the US, China and the EU are bouncing back from the pandemic, and it has also increased the global credit demand. This is an opportunity for Vietnam to boost its exports. Furthermore, the economic growth of the US remains positive, strengthening the shipments from Vietnam more robust. RongViet Securities Corporation (VDSC) recently released a forecast that stated GDP would grow by 7.2 percent in the second quarter of 2021 and 6.5 percent for the year as a whole.

The IMF also predicted Vietnam’s GDP growth to be 6.5 percent in 2021 and the per capita income to be more than $3,750 by 2023. According to the latest economic outlook report from Oxford Economics (OE), commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW) stated that Vietnam’s growth outlook remains optimistic. Its economy is expected to return to pre-pandemic levels by the second half of 2021 despite the recent resurgence in Covid-19.

Based on the factors listed above, we can say that Vietnam provides a positive outlook going forward. The improvements in policy-making settings and supporting the credit metrics can also contribute to the economy’s growth. Notably, even the weaknesses are balanced against the strong growth prospects and external position. Thus the new leadership’s focus on trade and economics could bring about positive changes and exponential growth.

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Due to the coronavirus pandemic, Vietnam’s impressive track record of economic growth was hampered this year. The country recorded gross domestic product (GDP) growth of 1.8 percent during the first half of 2020.

However, Vietnam expects to rebound next year from the economic slowdown the country is witnessing this year.

For that reason, the Vietnamese government is prioritising economic growth and pandemic prevention.

According to media reports, the government has asked its central bank to continue implementing a flexible monetary policy, control inflation and macroeconomic stability.

The Ministry of Planning and Investment is also working to promote FDI in Vietnam and are drafting new policies to attract more foreign investment.

Simultaneously, Vietnam’s Ministry of Industry and Trade is also working to boost its exports, stimulate domestic consumption, and strengthen prevention of smuggling and trade fraud.

As the number of positive Covid-19 cases keep soaring everyday all over the globe, Vietnam has done an impressive job in lowering the number of cases to 1068 as of today.

This has helped the country secure its economic activities despite entering a state of lockdown in April.

Vietnam has recorded an impressive economic growth since 2012, posting a 6 percent growth or higher every year. The growth is mainly attributed to the strength of its manufacturing sector along with the increasing spending power of its population.

Vietnam’s GDP is forecast to grow between 2 and 2.5 percent in 2020.

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The report titled “What will be the new normal for Vietnam? The economic impact of Covid-19”, forecasts that Vietnam’s economy will grow by 6.8 percent in 2021.

The forecasts are made after taking into consideration that the global situation gradually improves. However, with less favorable external conditions, Vietnam’s economy will expand by only 1.5 percent in 2020 and 4.5 percent in 2021, the World Bank said.

Stefanie Stallmeister, World Bank Acting Country Director for Vietnam said in a press release, “To adapt to the new normal, policymakers must find new ways to compensate for the weakening of the traditional drivers of growth while managing rising inequality. However, by being ahead of the curve of the Covid-19 crisis, Vietnam has the unique opportunity to increase its footprint on the global economy and become a leader in tomorrow’s digital world.”

According to the Vietnam Institute for Economic and Policy Research (VEPR), Vietnam’s economy could reach 3.8 percent growth this year if there would be no community transmission in the country in the remaining months.

The growth would be the lowest ever recorded by Vietnam since 1987, when it first opened its economy to the world.

During the first half of 2020, the Covid-19 pandemic caused trade to contract by 1.1 percent to $121.2 billion, with smartphones, textiles and garments, footwear, seafood, and fruit exports all decreasing.

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Launched at a conference jointly organized by Vietnam’s Ministry of Industry and Trade and the World Bank, with support from Australia, the reports – entitled Vietnam at a Crossroads: Engaging in the next Generation of Global Value Chains Report and Enhancing Enterprises Competitiveness and SME Linkages Study – showcase the growth potential of the country’s industries should policy reforms continue.

“Foreign Direct Investment, or FDI, has brought enormous gains to Vietnam in terms of growth, exports and jobs,” said Mr Vu Thang Hai, Vice Minister of Industry and Trade at the conference. “The discussion today and recommendations from these two reports offer many ideas on how Vietnam can participate in the next generation of global value chains, and promote linkages between domestic and foreign firms.”

Several domestic electronics and automotive companies in Vietnam have successfully integrated into global value chains. But in general, Vietnam has specialized in end-production assembly activities that are largely run by foreign firms with weak domestic linkages.

Vietnam can now choose to diversify, says the report, and foster the growth of innovative local firms that can potentially lead to products ‘invented in Vietnam’. A policy framework that aims to strengthen the capabilities and technology of local enterprises is expected to facilitate linkages with FDI firms, and enable them to enter foreign markets.

“Vietnam has successfully integrated into a few global value chains, which has created jobs, propelled economic growth, and reduced poverty,” said Ousmane Dione, World Bank Country Director for Vietnam. “But the country can move further up and strengthen its value addition with policy reforms and initiatives in areas such as transport, services, border procedures and regional integration.”

According to the reports, some key recommendations that can take Vietnam closer to its goal are to improve inter-ministerial coordination, facilitate information flows and contacts between domestic and foreign-owned firms, and to provide targeted support to strengthen domestic suppliers.

A higher place for Vietnam in global value chains will help attract more large scale foreign investment into the country, which can create more jobs and more opportunities for local suppliers.

But achieving this goal requires a solid package of reforms and initiatives, such as:

• Closing the infrastructure gap through greater mobilization of private financing and a more integrated approach to developing transport corridors;
• Developing competitive services markets and liberalizing regulations on foreign direct investment;
• Streamlining border procedures to make them more transparent and predictable; and
• Leveraging engagements with developed countries to ensure strong demand and technology-related investment.

Lessons from international and national experience presented at the conference outline the common elements of good programs that link domestic and foreign sectors. These include high-level political commitment and ownership, complemented with sound governance and institutional set-up, as well as an evidence-based strategy to foster linkage programs, a good supplier data base and business-to-business match-making services, and demand-driven supplier development programs.

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