Vietnam Market Outlook | Oct 2022

Downbeat global sentiment overshadows Vietnam’s outstanding 3Q macro performance

The roller coaster year that has been 2022 continued in September with markets falling 11.6% (after the 6.2% increase in August) as negative global macro news continued to dominate headlines. Despite the macro gloom and doom globally, Vietnam posted remarkable third quarter GDP growth of 13.67% (albeit from a low base in 2021 due to strong COVID restrictions), while being able to control average inflation in 9m 2022 at a reasonable 2.73% y/y. Other key macro indicators showed signs of continuing improvement with exports posting double digit growth in the quarter (+17.2% y/y) resulting in a quarterly trade surplus of USD5.8bn (YTD trade surplus USD6.5bn), disbursed Q3 FDI growing 32.9% y/y to USD5.4bn. Manufacturing continues to chug along with industrial production growing 11.9% y/y in Q3 and 9.63% y/y in the first three quarters of the year (vs +4.1% y/y in 9M2021). Domestic consumption rebounded strongly in Q3 after the lockdown period in 3Q 2021, with retail sales of consumer goods and services increasing an eye-catching 41.7% YoY in 3Q2022 and are up 21% y/y in 9M2022.

The State Bank of Vietnam was in the spotlight in September with a series of key announcements. On September 7th, there were two key announcements regarding increasing the credit growth quotas in the banking system and an increase in the spot reference asking rate by 300VND to 23,700. The increase in the credit growth quote by c. 2% fell short of expectations, given the YTD credit growth at the end of August of 9.9% and the whole year target of 14%, however, the gradual release of credit room is most likely a reaction to inflationary concerns as to not overheat the lending market in a short period of time. The devaluation of the VND by just over 1% was not overly surprising given the recent strength of the dollar (DXY up 14.8% YTD at the time of the move) and relative weakness in major export competing nations. The third move by the SBV was on Sept 23rd when the increase in key policy rates by 100bps was announced (the first change in rates since Oct 2020), just one day after the US Fed raised their key rates by 75bps (up 300bps YTD). We believe the move by the SBV to raise rates was more in response to pressures on the VND rather than an attempt to quell demand to combat inflationary pressures as the Vietnamese CPI remains under control. 

Ultimately, the strong domestic Q3 macro data was not able to overcome the glum sentiment surrounding global macro issues and the policy decisions from the SBV during the month, contributing to the slide in the VNIndex. The market decline was broad based, with all sectors finishing the month in the red and liquidity dropped 14% m/m as investors are taking a cautious approach to the markets and other investment channels are increasing yields (bank deposits have increased c. 100bps and range between 6.5-8% for 12-month terms). Starting the fourth quarter, we expect that the markets will remain volatile and that overall sentiment will continue to be subdued as the global economy battles stubbornly high inflation rates and energy concerns as the winter season approaches for the northern hemisphere.