Reasons to Invest in Vietnam – Growbeansprout.com

This article was created in partnership with ASEAN Exchanges. The views and opinions expressed are Beansprout’s objective and professional opinions.

What happened?

Investors are eyeing Vietnam as a rising star in Southeast Asia. As of September 30, 2024, the VN-Index—the benchmark Ho Chi Minh Stock Index—has surged 14% year-to-date, showcasing resilience despite a volatile macroeconomic landscape. The economy is projected to grow by 6.1% in 2024, a notable acceleration from 5% in 2023. This impressive trajectory is solidifying Vietnam’s standing as one of the region’s fastest-growing economies.

Why invest in Vietnam?

Beyond immediate gains, several long-term structural drivers make Vietnam particularly enticing for investors eyeing opportunities in emerging markets. These include its potential for economic growth, favourable demographics, a rising middle class, Vietnam’s strategic position in global trade, an increase in foreign direct investment, and a competitive labour market.

#1 – Economic Growth Potential

Vietnam’s economy has experienced consistent GDP increases over the past decade, primarily driven by industrialization and foreign direct investment (FDI). Despite the challenges posed by the pandemic, Vietnam’s GDP still recorded growth in both 2020 and 2021. As a critical manufacturing hub for electronics, textiles, and consumer goods—serving global giants like Samsung and Nike—manufacturing represented 24% of Vietnam’s GDP in 2023, according to the World Bank.

The government has launched reforms geared towards infrastructure development and business-friendly policies. Current initiatives include the 10-year Socio-Economic Development Strategy (SEDS) for 2021-2030. This strategy aims to cultivate Vietnam into an efficient and integrated economy. A significant part of this plan is the transport infrastructure initiative, estimated to cost between US$43 billion and US$65 billion. This initiative encompasses new expressways, high-speed rail networks, ports, and international airports.

The government also aims for a 10% increase in domestic businesses in 2024 by lowering investment and compliance costs. These developments are vital for sustaining Vietnam’s economic momentum while achieving government growth targets of 6.5%-7% by 2025. The outlook remains promising, bolstered by 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 youthful population and expanding middle class stand out as strong assets for long-term economic growth. With a median age of 32.9 years, Vietnam possesses a vibrant workforce capable of driving innovation and productivity. The consistent population growth ensures a steady supply of labour and consumers, both crucial for maintaining economic momentum.

According to the Ministry of Labour, Invalids and Social Affairs, Vietnam’s middle class is expected to rise from 13% in 2023 to 26% of the population by 2026, which will boost disposable income levels and domestic consumption—especially in sectors like retail, real estate, healthcare, and financial services. This is reflected in the growing average monthly income of employees within the country, potentially translating to stronger corporate earnings that enhance the attractiveness of Vietnam’s stock market.

#3 – Vietnam’s Strategic Position in Global Trade

Vietnam’s strategic geographic location along vital shipping routes is a significant asset for global trade. Being positioned along the South China Sea, one of the world’s most important maritime passages, enhances its logistics capabilities, ensuring efficient shipping routes. Prominent ports in Ho Chi Minh City, Da Nang, and Hai Phong are well-equipped to manage growing trade volumes, particularly with the ongoing infrastructure enhancements under the SEDS plan.

Additionally, 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) further boosts its global competitiveness. These agreements afford Vietnamese exports preferential access to significant markets, enabling robust trade dynamics.

Moreover, amid ongoing US-China trade tensions, many multinational companies are adopting the “China+1” strategy, diversifying their manufacturing bases to mitigate tariffs and geopolitical risks. In this context, Vietnam’s skilled workforce, competitive costs, and pro-business policies have positioned it as an attractive alternative for these firms, augmenting its role in global trade.

#4 – Rising Foreign Direct Investment

Vietnam’s openness to foreign direct investment (FDI) has fueled significant economic growth, particularly in manufacturing, technology, and energy sectors. Manufacturing alone accounted for 64.2% of total FDI inflows, facilitated by extensive foreign-invested projects in semiconductors, electronics, and energy.

Supportive government policies, including tax breaks and simplified procedures, have attracted foreign businesses to establish operations in Vietnam. Coupled with its strategic location and burgeoning domestic market, Vietnam has emerged as a prime destination for international investment. The post-pandemic surge in net FDI inflows reflects this trend.

Another factor enhancing Vietnam’s FDI appeal is the “China+1” strategy. Multinational corporations looking to diversify their supply chains have increasingly favored Vietnam, where competitive labour costs, improving infrastructure, and robust trade agreements create a conducive environment for business establishment. This inflow of foreign capital bolsters Vietnam’s long-term economic prospects and enhances its stock market performance.

#5 – Competitive Labour Market and Low Operating Costs

Vietnam’s competitive labour market is characterized by a growing, skilled workforce that presents a significant advantage for multinational corporations. The country boasts some of the lowest labour costs in the region, making it an attractive choice for businesses aiming to harness skilled labour.

In comparison to neighbouring countries like China, Indonesia, and Thailand, Vietnam’s labour cost averages only US$197 per month, as reported by China Briefing and ASEAN Briefing. Alongside lower labour costs, operational expenses—covering utilities, transportation, and infrastructure—are also relatively more affordable, enriching Vietnam’s appeal as a cost-efficient market for foreign investors.

This competitive edge positions Vietnam as the go-to destination for companies eager to scale operations while balancing costs, thus enhancing the long-term growth prospects for its economy and stock market.

What are some risks to look out for?

While the investment landscape in Vietnam is promising, potential investors should remain cognizant of certain risks:

• Macroeconomic Risks: Vietnam’s economy is sensitive to external factors such as economic conditions in its major trading partners. An unexpected recession in the US, for example, could negatively impact Vietnam’s economic performance.
• Regulatory Risks: The regulatory environment in Vietnam is evolving. Sudden shifts in government policies or regulations could affect various sectors or individual companies. Although political stability is predominantly strong, changes in trade agreements or investment laws can create uncertainties.
• Currency Risks: Foreign investors should be aware of currency risks associated with the Vietnamese Dong. Fluctuations in exchange rates with other currencies can impact investment returns.

How can investors gain exposure to Vietnam?

Vietnam’s economy has shown remarkable resilience against external challenges and is poised for sustained long-term growth. Investors aiming to tap into this burgeoning market can explore brokerage options that provide access to the Vietnam stock exchange or consider investing in exchange-traded funds (ETFs) tracking the VN-Index (VNI).

In the ASEAN region, several companies are expanding their footprint in Vietnam. Notably, ThaiBev secured a majority stake in Sabeco (Saigon Beer) in 2017, becoming a dominant force in the Vietnamese beer market. Retail giant Central Group (SET: CRC) continues to expand its presence in Vietnam, while real estate firms like CapitaLand Investment (SGX: 9CI), Keppel Limited (SGX: BN4), and Sunway Bhd (KLSE: SUNWAY) have established significant assets in the country. Infrastructure sector investments are also represented by companies like Siam Cement (SET: SCC) and Banpu (SET: Banpu).

Where can you find more resources on the Vietnam stock market?

Thorough research is crucial to capturing growth opportunities while mitigating risks when investing in Vietnam’s stock market. The HOSE and HNX websites provide extensive resources, including the latest company announcements, product offerings, and key trading statistics pertinent to the Vietnam stock market.

Vietnam stock market at a glance

The Vietnamese stock market comprises three exchanges: the HCM Stock Exchange (HOSE), the Hanoi Stock Exchange (HNX), and the Unlisted Public Company Market (UPCOM).

The HOSE is dominated by large-cap stocks, while the HNX focuses more on smaller, high-growth Vietnamese companies. UPCOM, which started as a transitional platform for companies moving toward formal listings, now features various sizable firms.

In terms of market composition, the financial sector accounts for 45% of the HOSE, closely followed by real estate (13%) and materials (9%). In contrast, the HNX’s largest sector is also financial (29%), followed by industrial (20%) and trade, accommodation, and food services (14%).

About ASEAN Exchanges

ASEAN Exchanges is a collaborative effort among the exchanges in ASEAN countries, aiming to enhance the integration of the region’s capital markets, improve the visibility of ASEAN as an asset class, and solidify ASEAN’s position as an attractive investment destination for both regional and global investors.

Current participating exchanges include Bursa Malaysia Berhad, Indonesia Stock Exchange, The Philippine Stock Exchange, Singapore Exchange, The Stock Exchange of Thailand, and Vietnam Exchange. To learn more about ASEAN Exchanges, click here.

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