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Investors are eyeing Vietnam as a rising star in Southeast Asia
The economy of Vietnam is expected to expand by 6.1% in 2024, an acceleration from the 5% growth in 2023, solidifying its status as one of the fastest-growing economies in the region.
Investors eye Vietnam due to strong economic growth projections, strategic global trade position, rising FDI, competitive labor market. Risks include external factors and regulatory environment. Ways to invest include brokers and ETFs.
As of 30 September 2024, the VN-Index—the benchmark Ho Chi Minh Stock Index—has surged 14% year-to-date, showcasing resilience despite a volatile macroeconomic landscape.
With the economy projected to grow by 6.1% in 2024, accelerating from 5% in 2023, Vietnam is cementing its position as one of the region’s fastest-growing economies.
Why invest in Vietnam?
Outside of these near term drivers, there are several long term structural drivers that have made Vietnam attractive to investors looking at investment opportunities in emerging markets.
These include its economic growth potential, favourable demographics and growing middle class, Vietnam’s strategic position in global trade, rising foreign direct investment, and competitive labour market.
#1 – Economic growth potential
Over the past decade, Vietnam’s economy has experienced consistent GDP increases driven by industrialization and foreign direct investment (FDI).
Despite being hit hard by the pandemic, Vietnam’s GDP still grew positively in 2020 and 2021.
As a critical manufacturing hub for electronics, textiles, and consumer goods, supplying global giants like Samsung and Nike, manufacturing represented 24% of Vietnam’s GDP in 2023 (World Bank).
Growth has been bolstered by government reforms that focus on infrastructure development and fostering business-friendly policies.
The government is currently focusing on the 10-year Socio-Economic Development Strategy (SEDS) 2021-2030 which seeks to develop Vietnam into an efficient, integrated and sustainable economy.
A key component of the SEDS include the transport infrastructure plan, estimated to cost US$43 billion to US$65 billion. Under the master plan, new expressways, high-speed rail networks, ports and international airports will be built.
The government also aims to increase the number of domestic businesses entering the market by 10% in 2024 through lowering input and compliance costs in investment and business activities and enhancing business resilience.
These initiatives are crucial to supporting Vietnam’s growing economy while maintaining its competitive advantage in global markets and achieving the government’s growth target of 6.5%-7% in 2025.
Vietnam’s economic outlook remains promising, with projected GDP growth rates of 6.1% in 2024 and 6.5% in 2025, according to the World Bank.
#2 – Favourable Demographics and Growing Middle Class
Vietnam’s young and growing population coupled with an increasing middle class is one of the country’s strongest assets, providing a solid foundation for long-term economic expansion.
With the median age being 32.9 years old, Vietnam has a youthful workforce that can drive innovation and productivity.
Additionally, the steady population growth over the past few years ensures a continuous supply of labour and consumers, both of which are essential for sustaining economic momentum.
According to the Ministry of Labour, Invalids and Social Affairs, Vietnam’s middle class is forecasted to expand to 26% of the population by 2026, up from 13% in 2023.
As the middle class continues to expand, disposable income levels rise, further boosting domestic consumption, particularly in sectors like retail, real estate, healthcare, and financial services. This is evident in Vietnam’s increasing average monthly income of employees over the past few quarters.
This, in turn, translates to potentially stronger corporate earnings, contributing to the overall growth and attractiveness of Vietnam’s stock market.
#3 – Vietnam’s Strategic Position in Global Trade
Vietnam’s geographic location along prime regional shipping routes is a significant advantage for its role in global trade.
Having direct access to the South China Sea, one of the world’s most vital maritime passages, significantly enhances Vietnam’s ability to serve as a key logistics hub, facilitating smooth and efficient shipping routes for global trade.
Vietnam’s major ports, such as those in Ho Chi Minh City, Da Nang, and Hai Phong, are also well-positioned to handle increasing volumes of trade, especially with the SEDS transport infrastructure plan.
This integration is further strengthened by Vietnam’s participation in major trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA).
These agreements provide Vietnamese exports with preferential access to key markets, boosting its competitiveness on the global stage.
Additionally, the ongoing US-China trade tensions have accelerated Vietnam’s rise as an alternative manufacturing destination.
Many multinational companies have adopted a “China+1” strategy, seeking to diversify their production bases away from China to avoid tariffs and geopolitical risks.
Vietnam, with its skilled workforce, cost advantages, and pro-business policies, has become a preferred choice for these firms, further enhancing its strategic position in global trade.
#4 – Rising Foreign Direct Investment
Vietnam’s openness to foreign direct investment (FDI) has been a key driver of its economic success, particularly in sectors like manufacturing, technology, and energy.
Manufacturing represented 64.2% of total FDI inflows, and many large foreign-invested projects in the semiconductor, electronics and energy sectors have attracted new investments.
The government has implemented supportive policies and offered attractive incentives, such as tax breaks and streamlined procedures, to encourage foreign businesses to set up operations in the country.
This pro-business environment, combined with Vietnam’s strategic location and growing domestic market, makes it an appealing destination for international investors. This can be seen in the increasing net inflows of FDI post-pandemic.
Another significant factor contributing to Vietnam’s rise in FDI is the “China+1” strategy, where multinational companies look to diversify their supply chains and reduce reliance on China by establishing operations in alternative markets.
Vietnam, with its competitive labour costs, improving infrastructure, and increasing trade agreements, has emerged as a top choice for such diversification.
This inflow of foreign capital strengthens Vietnam’s long-term economic outlook and boosts the performance of its stock market, especially in key industries that benefit from this investment trend.
#5 – Competitive Labour Market and Low Operating Costs
Vietnam’s competitive labour market, characterized by a large and increasingly skilled workforce, offers a significant advantage to multinational corporations.
The country boasts one of the lowest labour costs in the region, making it a highly attractive destination for businesses seeking to tap on the pool of skilled labour.
Compared to neighbouring countries like China, Indonesia and Thailand, Vietnam offers a significantly lower labour cost of US$197 per month, according to data from China Briefing and ASEAN Briefing.
In addition to lower labour costs, Vietnam’s operating expenses, such as utilities, transportation, and infrastructure, are comparatively cheaper. This further strengthens its appeal as a high-growth, cost-efficient market for foreign investors and companies looking to diversify their operations in Southeast Asia.
With this competitive edge, Vietnam is increasingly becoming the go-to destination for companies looking to scale their operations without compromising on cost-effectiveness, fuelling long-term growth prospects for its economy and stock market.
What are some risks to look out for?
Investing in Vietnam’s stock market, while promising, comes with certain risks that investors should keep in mind.
- Macroeconomic risks: Vietnam’s economy is exposed to external factors such as economic conditions in major trading partners. For example, an unexpected recession in the US may negatively impact Vietnam’s economy.
- Regulatory risks: Vietnam’s regulatory environment is evolving, and sudden shifts in government policies or regulations could impact sectors or individual companies. Political stability is generally strong, but changes in trade agreements, investment laws, or industry regulations can create uncertainties for investors.
- Currency risks: For foreign investors, exposure to the Vietnamese Dong may present currency risks. Fluctuations in the exchange rate between the Dong and other currencies can impact the returns of investments.
How can investors gain exposure to Vietnam?
Vietnam’s economy has shown strong resilience in the face of external challenges and is positioned for sustained long-term growth.
Investors looking to tap into Vietnam’s market can explore brokers offering access to the Vietnam stock exchange or invest in exchange-traded funds (ETFs) that track the VN-Index (VNI).
In the ASEAN region, several companies are expanding their presence in Vietnam. For instance, ThaiBev acquired a majority stake in Sabeco (Saigon Beer) in 2017, making it a dominant player in the Vietnamese beer market, while Central Group (SET: CRC) has a growing number of retail stores in Vietnam. Property companies such as CapitaLand Investment (SGX: 9CI), Keppel Limited (SGX:BN4), Sunway Bhd (KLSE: SUNWAY), have real estate assets in Vietnam within their portfolios. Companies that are exposed to Vietnam’s infrastructure sector include Siam Cement (SET: SCC) and Banpu (SET: Banpu).
Where can you find more resources on the Vietnam stock market?
Conducting thorough research may allow us to capture growth opportunities and mitigate risks when investing in the Vietnam stock market.
The HOSE and HNX websites offer additional resources for you to get the latest company announcements, products, services, and key trading statistics on the Vietnam stock market.
Vietnam stock market at a glance
The Vietnam stock market is made up of 3 different exchanges – the HCM Stock Exchange (HOSE), the Hanoi Stock Exchange (HNX) and the Unlisted Public Company Market (UPCOM).
Stock exchange
Year established
Market capitalisation
Number of stocks
HCM Stock Exchange
2000
US$256 billion
404
Hanoi Stock Exchange
2005
US$22 billion
345
Unlisted Public Company Market
2009
US$62 billion
903
Source: Sustainable Stock Exchange Initiative and Vietnam Investor Review as of 2024
The HOSE consists mainly of large cap stocks while the HNX was originally intended for smaller, high growth Vietnamese companies.
UPCOM was initially established as an intermediary step for companies to transition to a formal listing on either the HOSE or HNX. However, over the years fairly large companies have been listed on it.
For the HOSE, the financial sector accounts for 45% of the total market, followed by the real estate sector (13%) and the materials sector (9%). For the HNX, the financial sector holds the largest share (29%), followed by the industrial sector (20%) and trade, accommodation and food services sector (14%).
Source : Why Invest in Vietnam Stocks: A Rising Star in Southeast Asia
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