Vietnam, the next China?

Vietnam economic data

　　The reason why Vietnam can enter more people's field of vision is naturally due to the impressive economic data.

　　In terms of GDP size, according to the macroeconomic operation data released by the General Statistics Department of Vietnam, Vietnam's nominal GDP in 2023 reached 10.22181 quadrillion Vietnamese dong, achieving a growth of 5.05%. Converted at the average annual exchange rate, it is about 430 billion US dollars, ranking fifth among the 10 ASEAN countries in terms of GDP. In terms of per capita GDP, it increased to 4284 US dollars, an increase of 160 US dollars from the previous year.

　　The preliminary statistical report of Vietnam's national economy for the second quarter and first half of 2024 has been officially released. The economic growth rate in the first half of the year expanded to 6.42%, exceeding market expectations. Among them, the economy in the second quarter surged by 6.93%, 1.06 percentage points higher than the previous quarter's 5.87%. Among them, agriculture grew by 3.38%, the service industry grew by 6.64%, the construction industry grew by 7.34%, and the manufacturing industry surged by 8.67%. From the perspective of growth rate, the manufacturing industry has the best support effect.

　　According to market prices, Vietnam's economy expanded to 5.245201 quadrillion Vietnamese dong in the first half of the year. Converted at the average exchange rate, the GDP in the first half of the year was about 212.60 billion US dollars, setting a new record for the first half of the year. If there is no significant change in the economic growth rate in the second half of the year, the economic scale for the whole year of 2024 will inevitably exceed 450 billion US dollars.

　　In addition, after accounting, the total amount of Vietnam's foreign trade was about 395.90 billion US dollars, which also reached a historical high.

　　Image source: Kylc

Economic development process

　　The impressive performance of Vietnam's economy is closely related to the reform and opening-up policy implemented by its government, which is learned from China. The development process of Vietnam's economy can be summarized as the following important stages.

The launch of reform and opening up (1986-1991)

　　In 1986, Vietnam's inflation rate reached 775%, and the national economy collapsed, prompting Vietnam to implement a policy of reform and opening up.

　　In December of the same year, the Communist Party of Vietnam held its Sixth National Congress, establishing the general line of reform and development of “a commodity economy with multiple components that operates according to market mechanisms, is managed by the state, adheres to the socialist direction”, marking the beginning of Vietnam's version of “reform and opening up” or “reform and opening up”.

　　In 1987, the Vietnamese National Assembly promulgated the Law on Foreign Investment in Vietnam, providing subsidies such as tax and land use preferences for foreign investment to promote the inflow of foreign capital.

Comprehensive deepening stage (1991-2019)

　　The 7th to 10th National Congress of the Communist Party of Vietnam passed many resolutions on the basis of inheriting the innovative spirit of the 6th National Congress of the Communist Party of Vietnam, promoting comprehensive economic and social changes in Vietnam.

　　The 10th National Congress of the Communist Party of Vietnam held in April 2006 proposed to actively integrate into the international community. Vietnam officially joined the World Trade Organization and actively participated in regional and international multilateral cooperation organizations.

　　In 2007, Vietnam joined the World Trade Organization (WTO), further promoting economic openness and growth.

　　In 2018, Vietnam overtook Singapore as the highest-grossing market for IPOs in South East Asia, demonstrating its strong economic growth and attractiveness for foreign investment.

　　Image source: baidu

COVID-19 pandemic and economic adjustment (2020-present)

　　Under the impact of the COVID-19 pandemic in 2020, Vietnam adopted strict epidemic prevention measures. Although some initial results were achieved, the epidemic subsequently recurred, causing serious impact on the economy.

　　In response to the challenges of the epidemic, the Vietnamese government has taken a series of measures, including promoting the recovery of production and business activities, restructuring industries severely affected by the epidemic, and protecting enterprises in key areas. In 2021, Vietnam's import and export volume exceeded $660 billion, attracting more than $31 billion in foreign direct investment. The government and enterprises have actively adapted to the “new normal” to ensure stable production and operation, achieving positive results. In 2021, Vietnam's economy experienced twists and turns, ultimately achieving an economic growth of 2.58%.

　　In the later stage of the epidemic, the Vietnamese government adopted flexible epidemic prevention strategies, gradually resumed economic activities, and gradually relaxed entry restrictions in early 2022, resumed international flights, and promoted the recovery of the tourism industry. Subsequently, Vietnam's economic development showed strong resilience and vitality. In 2022, Vietnam's GDP growth rate reached 8.02%, a new high since 1997. In 2023, Vietnam's economic growth rate slowed down, with an annual GDP growth rate of about 5.05%.

Economic achievements and challenges

　　Since the reform and opening up, Vietnam's economy has made remarkable achievements. By 2023, the size of Vietnam's national economy will be 13,700 times that of 37 years ago, and the per capita GDP will increase from over 100 US dollars 30 years ago to 4,284 US dollars, an increase of about 42 times.

　　During the same period, Vietnam's economic structure experienced positive changes. The proportion of agriculture in GDP decreased from 40% in 1985 to 20% in 2007, and further decreased to 17% in 2015, while the proportion of industry and services increased accordingly.

　　It is not difficult to see that Vietnam's development path is indeed similar to China's, including policy-level reform and opening up, economic structure shifting from agriculture to industry and services, and the huge boost of foreign trade to the economy.

　　However, Vietnam also faces problems such as insufficient economic development momentum, widening wealth gap, intensifying social conflicts, and challenges to the party's leadership position.

　　The biggest problem is that Vietnam's economy is highly dependent on foreign trade, with exports accounting for as much as 95% of GDP. At the same time, Vietnam's industrial foundation is weak, and most of its intermediate and raw materials come from China. Once external demand slows down, the economy will be greatly affected. The cooling of GDP growth in 2023 is due to the weak external demand, resulting in a decline in export growth and a significant trade deficit, which will have an impact on the economy.

Vietnam stock market investment opportunities

　　After analyzing the economy, let's take a look at the investment opportunities in the Vietnamese stock market, which is also the most concerned part for investors.

Market overview

　　Vietnam Capital Markets started in 1996, with Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) as the main trading platforms. The market value of the financial industry in the stock market is increasing, becoming the largest weighted industry.

　　In terms of industry structure, the financial and real estate industries account for nearly 60% of the total weight in the Ho Chi Minh Index, which has a significant impact on the stock market. The proportion of manufacturing in the stock market is relatively low, mainly due to the low willingness of foreign capital to IPO in Vietnam Capital Markets.

　　In terms of investor structure, the number of retail investors in the Vietnamese stock market has increased significantly, increasing the market's active level. The operational direction of retail investors is different from that of foreign and local institutions, which has a significant impact on stock market fluctuations.

Stock market performance

　　The following chart shows the trend of the Ho Chi Minh Index in the Vietnamese stock market since 2018.

　　Image source: Choice

　　It is not difficult to see from the chart that the Vietnamese stock market suffered a huge impact after the outbreak of the epidemic in 2020, hitting a low point in recent years, but then began to rebound strongly.

　　In 2022, the Vietnamese stock market experienced significant fluctuations. At the beginning of the year, the VN-Index closed at 1043.9 points, a new historical high, but then closed at 911.9 points on November 15th, a new historical low. By the end of the year, the VN-Index closed at 1007.09 points, a year-on-year decrease of nearly 32%.

　　This is mainly due to global macroeconomic challenges, including high inflation, major central bank interest rate hikes, China's “zero Covid-19” strategy, and supply chain disruptions. In addition, the Vietnamese stock market has also been affected by the Russia-Ukraine conflict, leading to capital outflows and market sentiment shocks, with the VN30 index falling 20% from its peak.

　　After 2023, with the slow recovery of the global economy, the Vietnamese stock market also began to fluctuate upward.

　　Therefore, due to Vietnam's strong dependence on foreign countries, investment should not only focus on its economic fundamentals, but also take into account changes in the international situation and global macroeconomy.

Conclusion

　　In summary, Vietnam's economy has developed rapidly after the reform and opening up, and has encountered shocks during the epidemic. However, signs of recovery have been shown in the first half of 2024, especially in the industrial and service sectors.

　　In terms of the stock market, the financial and real estate sectors dominate, while the growth of retail investors has brought higher liquidity and volatility to the market. When considering investing in the Vietnamese stock market, investors should pay attention to factors such as the international macroeconomic situation, Vietnam's economic fundamentals, and policy environment, and make rational investment decisions.