Vietnam’s economy experienced a bumpy year with major stumbling blocks in the stock, property and corporate bond markets. However, it is expected to end 2022 on a high note thanks to surges in growth, the trade surplus and foreign investment.
GDP growth to lead Asia Pacific
Despite several economic challenges, Vietnam’s GDP growth is forecast to reach 8% this year, the highest among major countries in the Asia Pacific region.
Vietnam’s economy expanded by 8.83% in the first nine months of the year, the largest increase for the 2011-2022 period, thanks to a 13.67% surge in the third quarter.
The services sector grew at nearly 10.57% during this period, accounting for over half the overall growth. Industry and construction grew by over 9.44% to account for most of the remaining growth. Agriculture, forestry and aquaculture expanded by 2.99%.
The government predicts growth will reach 8% for the whole year, while lender HSBC pegged the country’s growth at 7.6% and the World Bank at 7.2%.
The economy showed positive recovery in many aspects in the first nine months, with 14 out of 15 targets achieved or even exceeded, Prime Minister Pham Minh Chinh said in October.
Trade surplus surges from Covid-19 low base
A surge in exports in the first half of the year helped Vietnam record a trade surplus of $10.6 billion in the first 11 months, against $0.6 billion for the same period last year.
A recovery in trade activity after two years of pandemic boosted exports, with the 35 biggest trade categories exceeding $1 billion. Among them, 10 exceeded $10 billion.
The U.S. remained the biggest export market at $101.5 billion, up 18% year-on-year, while China was the biggest import market at nearly $109 billion, for an increase of 9%.
FDI climbs to 5-year high
Disbursed foreign direct investment in the first 11 months surged 15.1% year-on-year to $19.68 billion, the highest increase in five years.
The country welcomed investors from 107 countries and territories, led by Singapore with an investment of $5.78 billion, which accounted for 23% of the total. It was followed by Japan, South Korea, and China.
Ho Chi Minh City accounted for 14% of newly registered capital, followed by Binh Duong Province and Quang Ninh Province.
Processing and manufacturing led FDI at $14.96 billion, followed by property and electricity production and distribution.
"Vietnam has repeatedly proven its ability to climb up the value chain over the years, to the point where the country has grown into a key manufacturing hub for tech products within the electronics space," Tim Evans, CEO of HSBC Vietnam, told VnExpress international.
Multinationals are increasingly pouring into the country. Lego began construction of a $1-billion plant in November and Foxconn, a key Apple supplier, leased 50.5 hectares of land in Bac Giang Province, where it plans to build a $300-million factory that will employ 30,000 workers.
Stock market rocked by turbulence
Vietnam’s stock market went through a year of turbulence with many global and domestic challenges pushing the benchmark VN-Index on a roller coaster ride.
The market started off the year strong with the VN-Index hitting a new peak of 1,528 points in early January, backed by a growing momentum which began in April 2020.
It then moved sideways until April when it started to dive repeatedly to new lows as Russia-Ukraine tension disrupted the global supply chain and surging inflation in major economies, such as the U.S. and Europe, drove down investor sentiment.
The arrests of several business leaders in the second quarter on charges of stock manipulation and bond fraud dragged down property stocks, pushing the market into a downward trend throughout June and July. The market fell to around 1,150 points before bouncing back in August.
With global organizations forecasting that inflation and the economic recession would remain a threat throughout 2023, the index continued to fall, hitting a low of around 900 points in November for the first time since October 2021.
Thanks to foreign investors’ continuous net purchases in November and early December and the State Bank of Vietnam raising its credit quota for commercial banks to boost lending, the VN-Index climbed back to around 1,050 points.
Property market stalled by crash crunch
Vietnam’s property market surged at the beginning of the year as speculators, fueled by rumors and hopes of making quick money, rushed to Hanoi, Ho Chi Minh City, Binh Duong, Dong Nai and other localities to trade land and houses, pushing profits to double-digit growth within months.
Fear of inflation and low bank deposit interest rates in the first quarter encouraged investors to look to property as a safe haven asset as they expected demand for property to increase.
"The Russia-Ukraine tension, Covid-19, inflation, and challenges facing business are encouraging stock investors to look for assets that are less risky," property expert Phan Cong Chanh said.
However, the rosy profit picture started to dissolve in the second half of the year when property developers struggled to obtain loans from banks as their credit quotas for the year were nearly maxed out. The central bank maintained the quota at 14% to keep inflation under control.
Raising money through bonds also proved difficult as the government crackdown on violations in the market continued, with heads of developers such as Tan Hoang Minh Group and Van Thinh Phat Holdings Group arrested for alleged issuance fraud.
The apartment absorption rate in Ho Chi Minh City was 15% in the third quarter, the lowest since 2019, while unsold inventories rose to a four-year high of 66% of primary supply, according to property consultancy Savills Vietnam.
Challenges in the property market will likely persist as supply fails to match demand and credit policies remain tight, Minister of Construction Nguyen Thanh Nghi said in November. Furthermore, industry insiders expect the market slump to continue next year.
Corporate bond market faces a crisis of confidence
Corporate bonds, one of the main capital mobilization channels for businesses in recent years, hit the wall this year with violations exposed among popular property developers.
Hanoi-based Tan Hoang Minh Group, a developer of major luxury apartment projects, saw its chairman and five executives arrested in April due to alleged fraud in nine bond issuances worth VND10 trillion ($414.18 million).
In October, Truong My Lan, chairwoman of the Van Thinh Phat Holdings Group, was arrested for alleged fraud related to the issuance and trading of bonds worth trillions of Vietnamese dong. The arrests triggered a wave of bond buybacks among issuers. The value of the corporate bond buybacks as of November 25 had risen 14% year-on-year to VND161 trillion, according to the Ministry of Finance.
"Corporations are buying back the bonds they issued before maturity, which shows the difficulty the market is in," said Deputy Minister of Finance Nguyen Duc Chi. "Declining confidence has had a major impact on the corporate bond market." Regaining investor confidence is the most urgent task, he said, adding that the bond market would grow sustainably in the long run.
Gasoline shortage upends life
In mid-November, queues of people could be seen at fuel stations in Hanoi and Ho Chi Minh City from early morning until late at night as a major fuel shortage plagued the country.
Hundreds of gas stations in major cities shut down or limited sales in October and November due to financial difficulties and tight supplies.
Retailers said that they have been selling at a loss for months, as increasing costs were not taken into account in the government-controlled retail price, while the authorities at times denied that there was a supply crunch, even though buyers had to queue for up to half an hour every time they bought fuel.
Businesses in the fuel supply chain blamed the Ministry of Industry and Trade and the Ministry of Finance for "problematic" management, saying that the more they sold, the bigger their loss.
"Retailers are at the end of the supply chain, but we cannot determine our own commission and have to be dependent on the generosity of suppliers," 36 fuel retailers in Ho Chi Minh City wrote in a letter to Prime Minister Pham Minh Chinh.
Chinh ordered government bodies to quickly resolve the issue, including taking into account transportation costs for fuel in retail price, and told the central bank to provide suppliers with easy credit access so they could import more fuel.
The recent fuel shortages happened because retail prices did not follow the principles of a market economy, and the government was not able to mandate prices, Chinh said at the end of November, when the supply had been increased to meet demand.
"Businesses only operate if they gain profits," said Chinh. "It is very difficult for the government to use administrative measures in a market economy."
Dollar shoots up against dong
Global economic uncertainties and rising inflation pushed the U.S. dollar to a new record against the dong this year at VND24,888 to $1 on October 26 at Vietcombank, up 8.59% since the beginning of the year.
The dollar remained high until the end of November when it started to plunge. The exchange rate is is now at around VND24,060 to one $1, up 4.97% since the beginning of the year.
Globally the U.S. Dollar Index, which measures the greenback’s strength against major currencies, reached a new peak of around 114 points at the end of September, a two-decade high. Although the rising dollar gives Vietnamese exporters more profit, they also see expenses increased as they have to import from countries that saw their currencies weakened against the greenback. "In the long run, if we need to borrow more in dollars, our revenues could be negatively affected by the exchange rate," said Pham Hong Phu, CEO of rubber manufacturer Casumina, which imports 40% of its raw materials.
Banks race to pump up deposit interest rates
Major changes were seen in bank interest rates this year, which started off at a low level and then surged toward the final months.
Bank deposits made by individuals in the first four months were up VND120 trillion ($5.2 billion) year-on-year, the lowest rate of increase in the last six years as deposit interest rates dropped by 1.5-2.5% points since the end of 2019 to around 3-4.5%. in the second quarter.
But in the second half of the year banks raced to lift deposit rates to around 10% as the central bank raised its policy rates twice in September and October to 6% after keeping it at 4% for two years. Raising policy rates is imperative to keep exchange rates under control, which is a very important factor for foreign investors, said Nguyen Thi Hong, governor of the State Bank of Vietnam.
"High interest rates could affect businesses and slow down economic growth somewhat," she said, "but steady forex and banking systems will enable a boost in recovery later."
Source: CCIPV / VNEXPRESS