OVERVIEW OF VIETNAM ECONOMY, HOW IT AFFECTS THE STOCK MARKET

This blog post will focus more on the overview of the Vietnam economy over the last couple of decades which approximately matches the time frame of the history of the Vietnam stock market.

Read on to get a sense of the key drivers of Vietnam’s economy and how that may affect the Vietnam stock market. It might help to get a sense of what the outlook is for the Vietnam economy for the rest of 2021 and beyond.

Vietnam economic FORECAST 2022

It is expected that Vietnam can record GDP growth of close to 6.5% in 2021, and for it to record similar or higher growth in 2022. In the 2020 year the pandemic saw few economies recording growth, but Vietnam grew by almost 3%, outpacing China’s growth.

Therefore despite slower than normal growth in 2020, the Vietnam stock market since then has been amongst the very best market performers. Strong relative economic growth has been a factor driving this.

Vietnam has consistently been one of the faster growing economies over the last few decades as we can see from the below chart.

vietnam gdp chart

Vietnam debt to GDP CHART

Vietnam’s government debt to GDP has been relatively stable over the last decade, often around 50% of GDP, although was edging towards the high end of the range near 60% around 2016. This was somewhat of a concern for markets at the time.

Like many countries in the world, household debt is on the rise, but the growth has been particularly rapid in Vietnam over the last 7 years:

Vietnam key exports / trade balance CHART

Vietnam’s key exports include consumer electronics, machinery and mechanical appliances, garments, footwears and furniture. Major countries it exports to are the US, China, Japan and South Korea.

Vietnam have seen a major improvement in the trade balance in the last decade, following a significant deterioration after the global financial crisis.

This is evident from the 20-year chart below:

Source: CEIC

They experienced a surge in foreign direct investment amidst an environment of booming exports just prior to 2008. What followed was continued high demand for consumption goods fuelling growth in imports. At the same time however the shock of the global financial crisis left a troublesome time for Vietnam’s key export partners. At this stage in its development its less developed bond, currency and stock markets and banking system found it difficult to get through the volatility.

Vietnam population and workforce

Vietnam’s population (inching closer to 100 million now) is relatively young, and it is a country where the cost of labour is considered cheap. The average monthly income for most still sits at not much more than $US 200 a month. This factor is often mentioned by the bulls as a case for investing in Vietnam.

Still more than a third of the workforce is in the agricultural sector, although a decade ago it was more like a half. Opportunities have opened up in industry and services to drive this trend, and improvements in education and training have assisted this to take place.

Vietnam political system

Vietnam has a one party system which has overseen the strong economic growth that has been in place for many decades as the economic growth chart earlier showed.

Vietnam inflation rate CHART

The last decade or so has seen a welcomed period of getting inflation under control in Vietnam.

The decade prior however was a different story as the above chart demonstrates the volatility in inflation at times.

Weak trade balances, currency weakness, strong consumer demand and asset prices saw inflation pressures build up in this period. A rise in bad loans in the banking system also characterised this period.

It is no coincidence that the high inflation years resulted in troublesome time for Vietnam stock market investors, whereas after the tame inflation in recent years the stock market is heading to record highs.

Vietnam Foreign Direct Investment (FDI) CHART

Source: CEIC

I find this chart quite interesting as we can see the surge in FDI that picked up around 2007. The following 5 years the economy didn’t handle this very well. FDI is now picking up to solid levels, but the current account balance has improved.

Vietnam currency volatility

When Vietnam began to control the troublesome inflationary period around 2012, the currency since then has been quite stable. It has tended to devalue by about 1% or so a year when compared with the USD.

Vietnam interest rates CHART

Source: Worldbank / General Statistics Office of Vietnam via Asia Frontier Capital Vietnam Fund

Relatively low interest rate on savings has been a story over the last year that has prompted the Vietnamese to open new stock broking accounts at faster rates than we used to see.

Vietnam stock market history

Note the extent of the decline after the boom around 2007, not for the faint hearted!

Source: trading economics

If you want to explore more about the history of the Vietnam stock market, I covered many aspects in a broad overview of the Vietnam stock market in a previous article here, AN OVERVIEW OF THE VIETNAM STOCK MARKET – A ONE STOP GUIDE. – VIETNAM STOCK MARKET (vietnamesestockmarket.com).

VIETNAM ECONOMIC OUTLOOK 2022

I hope this has given you a sound broad overview to understand the Vietnam economy and how it has affected the stock market throughout its history since the year 2000. The nature of this blog post was a bit historical looking but nonetheless it is a key to understand the volatility of the last 20 years if one is deciding to invest in Vietnam’s future. In a future I blog post I plan to look more specifically at the prospects for the Vietnam stock market for over the next decade.

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