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Highlights
- Equity Market Dynamics: Vietnam's growth supported by pro-growth policies, but global shifts may cause foreign outflows.
- US Policy Impact: Potential tariffs and a strong dollar could challenge, but also position, Vietnam as an alternative manufacturing hub.
- Trade and Currency Stability: Vietnam remains proactive in stabilizing the dong and addressing transshipment risks.
Vietnam Enterprise Investments Limited (LSE:VEIL) released its latest quarterly insights, providing a comprehensive view of the country’s equity market outlook amid a challenging global economic landscape. Vietnam's equity market, supported by strong pro-growth domestic policies, faces potential pressure from a strengthening US dollar and foreign capital outflows. These factors, VEIL notes, could lead to valuation discounts in emerging markets as investors seek the relative stability of US equities, similar to trends seen in Trump’s prior term.
The Vietnamese market’s projected return may trail its earnings growth if foreign outflows persist. However, valuation levels remain attractive: the Top-80 universe of Vietnamese stocks trades at a projected 2024 price-to-earnings ratio of 11.6, below the five-year historical average of 13.9. This discount, VEIL notes, may be tempered by local investor demand, driven by low domestic deposit rates around 5.7%, which enhance the relative appeal of equities.
The report also addresses currency stability, highlighting Vietnam’s efforts to maintain a steady exchange rate amid ongoing US Treasury monitoring. Vietnam’s government has demonstrated a commitment to avoid competitive devaluation, investing over $20 billion in foreign exchange reserves since 2022 to stabilize the dong. This proactive stance reflects the government’s dedication to allaying concerns over its trade surplus with the US.
Looking ahead, potential policy shifts under a new Trump administration could impact Vietnam’s capital markets. Proposed tariffs on Chinese and other high-surplus-nation imports might present Vietnam as a viable alternative for global manufacturing, a shift that Vietnam has previously capitalized on. However, increased US scrutiny on Vietnamese goods, particularly in sectors with high foreign direct investment (FDI) ties to China, could accompany these opportunities. The report identifies sectors like electronics and textiles as particularly vulnerable to targeted US trade measures.
In response, Vietnam may work to narrow its trade surplus with the US by increasing imports of high-value goods such as aircraft, energy, and technology. VEIL also notes Vietnam’s efforts to prevent transshipment, especially for Chinese-origin goods re-routed to avoid US tariffs. The Ministry of Industry and Trade is actively investigating steel imports from China and South Korea to discourage illegal re-exports, underscoring Vietnam’s commitment to responsible trade practices.
The report concludes that, while Vietnam’s role as a manufacturing hub could expand under Trump’s policies, increased scrutiny on exports and transshipment risks will require proactive policy measures. Vietnam’s government is expected to advance localization strategies to solidify its position in global supply chains, promoting resilience within its manufacturing sector. These policies, including formalized rules of origin and transshipment deterrents, aim to capture more value within domestic industries, strengthening Vietnam’s shift toward self-sufficient, value-added production.
