Vietnam remains favored supply chain destination: brokerage houses

Vietnam’s status as a favored destination for factories being shifted from high-stakes countries could be further strengthened by the recent upgrade in bilateral ties with the U.S., brokerage houses say.

Other strengthening factors include Vietnam’s infrastructure drive, supportive policies and commitment to net-zero emissions, and signals of a global economic recovery, Ho Chi Minh City-based Mirae Asset Securities (Vietnam) Co. reported recently.

The report said that heightened geopolitical risks and China’s economic restructuring have prompted manufacturers to look for new markets to relocate their factories, or consider the “China Plus One” strategy.

The securities firm reckoned that the recent upgrade of Vietnam-U.S. relations to a comprehensive strategic partnership could trigger new investments from America, particularly in semiconductors and chips.

Analysts at Bao Viet Securities Co. have expressed similar views, seeing a correlation between geopolitical risks and interest in shifting investments.

Many major semiconductor and electronics producers have recently chosen to build major factories in Vietnam including a $1-billion semiconductor plant by South Korea’s Hana Micron Vina; a $1.6-billion chip assembly and testing plant by the U.S.’s Amkor Technology; and a $400-million electronic components plant by China-based Victory Giant Technology.

These big-ticket projects have brightened Vietnam’s FDI picture against a gloomy global economic backdrop.

FDI commitments increased 7.7% year-on-year to $20.21 billion in the year to September 20, including $10.23 billion in new projects, up 43.6%. Actual FDI edged up 2.2% to $15.91 billion, according to government data.

The U.S. has so far invested $11.81 billion in Vietnam, becoming its 11th largest foreign investor.

An HSBC report released last month said that Vietnam and Malaysia were main beneficiaries of U.S.-China trade tensions. This reflected “their increasingly important positions along the global tech supply chain.”

While much of the investment initially entered the lower value-added textile and footwear spaces, Vietnam has quickly climbed up the value chain, growing into a key hub for electronics assembly.

“Despite severe trade challenges, Vietnam continues to be on the frontline to absorb quality FDI,” the report said, adding that the increase in new FDI into manufacturing provides grounds for the country to see a strong rebound when the cycle turns.

Nikkei Asia reported last week that Vietnam seemed to be on the verge of seeing a massive influx of foreign capital, especially from the U.S, resulting in a “fourth boom of inbound foreign investment.”

U.S. President Biden's visit to Hanoi last month “may be interpreted by American businesses as a green light to invest in Vietnam,” the report said.

Other reports have also mentioned the possible transformation of Vietnam’s industrial structure by collaborating with U.S. tech companies, especially in semiconductors and Artificial Intelligence.

During Biden’s visit to Vietnam and Vietnamese Prime Minister Pham Minh Chinh’s visit to the U.S. a week later, several tech giants expressed interest in making inroads into one of the fastest growing economies in Asia and beyond.

In a conversation with The Investor, eminent economist Pham Chi Lan advocated bolder incentives for the semiconductor industry that go beyond the existing regulatory framework. “We need to attract sectors that can transform our economic structure and export composition and really engage the participation of Vietnamese businesses,” she said.

Opportunities from industrial park shares

Bao Viet Securities analysts commented that a boost in infrastructure will help Vietnam maintain a stable investment environment and lure more FDI.

With expected new FDI after Biden’s visit, the brokerage house highlighted the potential of shares of industrial park (IP) operators.

Vietnam’s average lease rate for factory space at IPs hovers around $5 per square per month, which is more competitive than that of Singapore, Indonesia, India, Malaysia and the Philippines.

The occupancy ratio at IPs in Vietnam stays above 80% and elevated in the southern provinces, including Ho Chi Minh City and Dong Nai.

In the last quarter of 2023, Bao Viet Securities recommended investing in the stocks of five IP developers given their attractive valuations and a good position to host new FDI inflows that shift away from China.