Vietnam’s Financial Background: What you need to know?



In recent years, India, Vietnam and Indonesia have been agreed as the three regions are the worthiest places for investment in Southeast Asia. Since there is a lot of investment opportunities, investors also come to these places for investment, but most of the results are not satisfactory. People should have a comprehensive understanding of the market before investing to avoid problems in the future.

Vietnam is a developing country, the implementation of reform and opening up after WWII and Vietnam War to improve the economy where it maintained a rapid growth rate. According to the IMF World Database, the per capita GDP of Vietnam is estimated at 5,621 international dollars by purchasing power. This is similar to India and the Philippines. Compared to other emerging countries in Southeast Asia, the level is 39% of Thailand, and 55% of Indonesia.

In Vietnam, agriculture is a pillar industry of the national economy which includes population accounts about 80% of the total population. Agricultural output accounts for about 30% of gross domestic product. Vietnamese food crop mainly is rice which economic crops is mainly coffee, rubber, cashews, tea, peanuts, silk and so on. Vietnam is increasingly dependent on economic crops such as tea, coffee and rubber to further develop the economy while in the domestic capital market, Vietnam is lagging behind other countries in Southeast Asia but they are slowly improving.

Over the past five years, the Vietnamese stock market increased to 12% which is the lowest in Asia. Vietnam’s total market capitalization of the stock market share of GDP is currently only 30%. In contrast, the total market capitalization of Thailand and the Philippines is 116% and 95% of GDP, respectively. Vietnam’s long-term P / E ratio is the second lowest in Asia, only after South Korea. Vietnam has about 700 listed companies, but many companies are very small scale. More than 90% of the listed companies have a market value of less than $ 100 million. The biggest obstacle to buying Vietnamese stock is supply, not price. According to the MSCI Investment Index, Vietnam is currently classified as a “cutting edge” market. Compared to emerging markets, the amount of money linked to the frontier index is very small and they are also in top five closed-end funds in the tube assets of about 20 billion US dollars.

At present, the Vietnamese authorities have successfully stabilized the macroeconomic environment. The actual economic growth of more than 5% each year, the level of inflation from the end of 2011 to 18.7% to 2016 below 1%. This is the lowest overall inflation since 2001. After 2011, the central bank cut interest rates all the way, until 2016 May, the interest rate dropped to 6.5%. Vietnam joined WTO in 2007. After that, the dollar’s exports almost tripled, reaching $ 150 billion in 2014. This is roughly equivalent to 80% of GDP. In addition to commodity exports, Vietnam has successfully grown its tourism industry, is one of Asia’s fastest growing tourist destinations. Since 2000, the annual compound growth rate of visitors has been 9.8% among Southeast Asian countries, after Cambodia and Laos. Tourism is expected to be a major source of revenue; investment in airport expansion, new airlines and resorts is expected to increase significantly. At the same time, the real estate industry has been stable, is currently recovering. The decline in interest rates and the recovery in the property sector provided a more supportive environment for Vietnamese banks. However, the market is widely forecasting system-wide non-performing loans are still up to 15% of total assets.

Vietnam’s economic development is also increasing the uncertainty: the first quarter of 2016, Vietnam’s industrial production index and GDP growth year on year decline than in 2015; import and export growth slow down; crude oil export prices fell; drought has caused the rice production decrease and affect exports. These factors have led to a reduction in central fiscal revenue, high public debt and deficits. With a strong start to 2017, Vietnam’s economy is poised to accelerate this year after last year’s slowdown. In January and February industrial production grew close to 8.0% on average and the PMI recorded a multi-month high in February. The fluctuation between January and February is explained by the Lunar New Year, which fell in January this year but in February last year. Given these recent figures, industrial production, mainly of export goods, will likely be the main driver of growth again in Q1. Notwithstanding the upbeat momentum, the domestic side of the economy still faces some structural challenges such as a relatively weak banking sector, which is enmeshed with a number of poorly performing state-owned enterprises and weak banking sector. A large number of experts believe that Vietnam will be able to achieve its target economic growth of 6.7% in 2017.

Vietnam in recent years has actively fostered integration by signing different free trade agreements with industrialized economies, which serves as an impetus for foreign investors to enter and develop in Vietnam and with sustained strong levels of FDI inflows, Vietnam’s exports are expected to surge in 2017 and consequently contribute to the overall economic growth. The government could potentially increase the money supply causing the inflation to rise to 5-8%. Despite enormous effort in integration, Vietnam’s economy still depends largely on China. However, uncertainties in global economy also become a challenge for Vietnam and the unknown status of TPP (Trans-Pacific Partnership) which in risk to be cancelled will not significantly affect Vietnam’s economy because the country still possesses different free trade agreements and bilateral agreements with other nations.

The majority of international experts also suggest Vietnam to foster the economic transform to support the growth based on productivity and quality so that Vietnam can be one of the top economy leader in Southeast Asia and later Asian region which continuous effort in improving Vietnam’s economy will finally put Vietnam among the world economy powerhouse by 2020.