Domestic fundamentals hold firm as markets reprice global risk

February’s data reinforces the resilience and breadth of Vietnam’s growth trajectory. But the escalation of tensions in the Middle East introduces external risks and potential volatility, particularly through energy prices, global risk sentiment, and FX pressures, writes Tung Dang, chief economist at Dragon Capital.

February’s data suggests Vietnam’s growth momentum remains intact despite seasonal distortions around the Lunar New Year.

Industrial activity and business sentiment continued to strengthen, while inflation remained contained, preserving policy flexibility.

However, global markets, including Vietnam, have since experienced a sharp increase in volatility following the escalation of the Iran conflict in early March, shifting nearterm investor sentiment even as Vietnam’s underlying macro trajectory remains on track.

Industrial activity remained a key pillar of growth. The Index of Industrial Production (IIP) rose 1% year-on-year in February, bringing year-to-date growth to 10.4% year-on-year, led by manufacturing and processing at 11.5%.

Business sentiment also strengthened, with PMI rising to 54.5 and business confidence reaching a 41-month high, signalling that firms are seeing sustained demand and may be preparing for further expansion.

Inflation remained well contained, with CPI averaging 2.9% year-on-year for the first two months, preserving policy flexibility and supporting stable financial conditions.

Domestic demand also remained firm. Retail sales and services revenue increased 7.9% year-on-year in the first two months, with February alone rising 8.5% year-on-year.

Seasonal spending during the Tet (Lunar New Year holiday) supported activity in apparel, accommodation, food services, and travel, underpinning the continued recovery of services and steady household consumption.

Investment and external activity continued to support growth. Total trade turnover reached $155.7 billion year to date, up 22.2% year-on-year, with exports rising18.3% year-on-year to $76.36 billion.

Import demand also remained firm, reflecting continued purchases of intermediate goods and production inputs as industrial activity expanded, which suggests manufacturers remain confident in near-term order flow.

Realized FDI disbursement reached $3.21 billion year to date, up 8.8% year-on-year, with manufacturing continuing to attract the majority of foreign capital.

Fiscal dynamics remained supportive, with state budget revenue reaching approximately $22.9 billion in the first two months of 2026, up 13.1% year-on-year, helping preserve room for continued growth-supportive spending.

Equity markets were relatively stable during the shorter trading month. With only 15 trading sessions due to the holidays, the VN-Index recorded again of 2.4% month-on-month in USD terms.

Liquidity eased slightly to $1.2 billion around the holiday period but remained healthy relative to historical averages, supported primarily by domestic participation. Foreign investor activity was mixed, although intermittent net-buying sessions continued to appear.

Investor attention remained focused on companies linked to industrial expansion and structural policy themes, while state-owned enterprises (SOEs) continued to attract interest following the government’s reform agenda under Resolution 79.

That pattern suggests investors are still rewarding areas of the market most closely tied to cyclical recovery and policy execution.

In summary, February’s data reinforces the resilience and breadth of Vietnam’s growth trajectory. Manufacturing remains the anchor of expansion, while services activity, consumption, and investment flows continue to strengthen.

If industrial momentum persists and inflation remains contained, policy conditions should remain supportive, allowing the equity market’s focus to shift increasingly toward earnings delivery and the gradual return of foreign investor participation.

That said, the escalation of tensions in the Middle East introduces external risks and potential volatility, particularly through energy prices, global risk sentiment, and FX pressures, which we will continue to monitor closely.