Vietnam rises as global production hub on improving fundamentals: HSBC

By HSBC analysts
Wed, February 12, 2025 | 1:03 pm GMT+7

Vietnam’s status as a rising global production hub is not only due to geopolitical factors but also thanks to its improving fundamentals, write HSBC analysts in the bank's report "Vietnam at a glance - Let’s talk capital".

Danang Port in Danang city, central Vietnam. Photo courtesy of KVN Logistics.

Danang Port in Danang city, central Vietnam. Photo courtesy of KVN Logistics.

An underdeveloped capital market

Despite being the best stock market performer in ASEAN last year, Vietnam’s capital market remains underdeveloped. Over the past decades, Vietnam’s economic growth has been heavily driven by bank credit. However, a large dependency on credit can lead to amplifying economic adjustments in adverse conditions. While there has been a push to develop Vietnam’s capital market, structural challenges persist, including transaction and infrastructure-related hurdles, as well as relatively less corporate transparency and disclosures.

Clearing the hurdles

Fortunately, changes are underway. Vietnam has scrapped the pre-funding requirement for stock market transactions, clearing a significant criterion to upgrade its designation from a frontier market to an emerging market. Meanwhile, reforms to improve transparency and information disclosures to accommodate a global investor base while expanding the domestic investor base are also encouraging.

January data: Tet (Lunar New Year holiday) distortions

Do not let Tet distortions disguise Vietnam’s January economic performance. While exports fell in January, the moderate decline primarily reflects the timing distortions of Tet, as factories were closed for longer holidays in January.

Tariff continues to be buzz word, but it is too early to draw implications, given a large degree of uncertainty persists for ASEAN and Vietnam. In addition, inflation may look concerning, as inflation accelerated to 3.6% year-on-year. However, we believe there are few reasons to be worried about the inflation path, as upside risks may prove to be seasonal.

Let’s talk capital

For all the talk of investments in Vietnam, one must not forget about its budding capital markets. In fact, Vietnam was the best stock market performer in Southeast Asia in 2024. However, recent quarters have also seen some pullback in portfolio investment flows from foreign investors as the chart below shows.

Albeit small in size, there have been recent outflows from foreign portfolio investor.

Albeit small in size, there have been recent outflows from foreign portfolio investor.

Albeit mostly driven by macro developments, this nevertheless poses the question: are there roadblocks inhibiting foreign interest and participation in Vietnam’s stock market? And indeed, structural challenges persist: transaction and infrastructure-related hurdles, relatively less corporate transparency and disclosures, to name a few.

But changes are underway. Effective November 2024, Vietnam has scrapped the pre-funding requirement for stock market transactions, clearing a significant criterion to upgrade its designation from a frontier market to an emerging market, potentially later this year.

Vietnam has been on the watchlist since 2018. If implemented, FTSE Russell, a major index provider, estimates that an upgrade in designation could bring $6 billion or over 1% of GDP in foreign investment inflows into the country (Nikkei, January 28, 2025).

After facing numerous delays, an upgrade in the trading infrastructure is also looming, with authorities aiming and pushing to implement the KRX system this year (Theinvestor, December 18, 2024).

Such focus is particularly significant for Vietnam, which has lagged ASEAN peers in terms of stock market development. In contrast, bank lending has grown substantially relative to the size of its economy, indicating that credit primarily supported the high growth trend observed over the years.

Vietnam’s economy leans heavily on bank lending for capital.

Vietnam’s economy leans heavily on bank lending for capital.

However, a large dependency on credit can lead to amplifying economic adjustments in an adverse manner, such as when borrowing costs rose in late 2022. When the economy experienced acute inflation shortly after the pandemic and the State Bank of Vietnam (SBV) responded accordingly by tightening monetary policy, credit growth slowed sharply as pressures flowed across many areas in the domestic sector, particularly in banking and real estate, which is included under other services.

The economy is highly sensitive to changes in financial conditions.

The economy is highly sensitive to changes in financial conditions.

Credit growth slowed, particularly in services, in 2023.

Credit growth slowed, particularly in services, in 2023.

In this context, developments to improve capital markets should not only be seen as catching up to market peers but also in terms of diversifying and expanding capital mobilization channels to build financial resilience.

Despite the stock market being larger in size relative to its bond market, actual capital raised in the equity market only amounted to about 10% of funds raised in the corporate bond market through 2019-23 (World Bank, 23 August 2024).

The dominant presence of the banking sector is also reflected in these markets, of which the banking sector traditionally and continues to encompass the majority of corporate bond issuances. Other sectors, such as manufacturing and retail, evidently face greater challenges in accessing sources of funding other than bank credit, potentially limiting an efficient allocation of capital and constraining activity.

Corporate bond issuance by sector in 2024.

Corporate bond issuance by sector in 2024.

Fortunately, the government has been taking steps to address various challenges and risks surrounding capital markets. Following the challenging market environment for corporate bonds in late 2022, the authorities have introduced more safeguards to allay investor concerns, such as allowing only professional investors to participate in the trading of corporate bonds via private placement (Theinvestor, November 29, 2024).

Meanwhile, structural reforms to improve transparency and information disclosure to accommodate a global investor base are also underway. In comparison to other ASEAN peers that have already adopted International Financial Reporting Standards (IFRS), not all corporations in Vietnam have shifted from Vietnam Accounting Standards (VAS) and adopted IFRS yet, leading to valuation differences. Encouragingly, 2025 is reportedly a key year in the transition plan set forth by the government, as IFRS adoption shifts from being voluntary to compulsory for public companies from this year onward.

Introducing more transparency has also been the case in other areas of the economy, such as the real estate market. Regulatory changes in the 2024 Land Law, 2023 Housing Law, and 2023 Real Estate Business Law have supported newly registered FDI to flow into the sector, registering $4 billion in 2024, up from $1 billion in 2023. Notable changes, such as land prices better reflecting market values, easing land-related rights for overseas Vietnamese, and more stringent information disclosure by real estate businesses, will continue to support a recovery in sentiment.

Beyond increasing foreign participation in capital markets, expanding and diversifying the domestic investor base will be key in helping to sustainably achieve the official targets of a stock market capitalization of 120% and corporate bonds outstanding of 25% of GDP, respectively, by 2030.

Indeed, the presence of institutional investors in both spaces has notable room to grow. For instance, Vietnam’s social security fund (VSS), which is estimated to hold more than 10% of GDP in assets, is currently not allowed to invest in domestic equities and corporate bonds (World Bank, August 23, 2024). Driven in part by the lack of investment choices, this has led the VSS to purchase government bonds, with the fund and banks effectively owning the government bond market and distorting price signalling. Activity in Vietnam’s capital markets therefore has significant potential to grow, with the potential stock market upgrade just the start.

Ownership composition of government bonds as of Q3/2024.

Ownership composition of government bonds as of Q3/2024.

January at a glance

Tet arrived not only early this year, in January, but also brought a nine-day holiday, two days more than last year. Therefore, this affected monthly data readings as workers headed back home to celebrate the holiday.

Not surprisingly, retail sales rose 10% year-on-year, with both goods and services posting strong year-on-year growth. That said, the consumption trend suggests that Vietnamese consumer spending has more room to recover, as retail sales were still 8% below what trend growth would suggest. We wait for February’s data to adjust for Tet distortions for a clearer insight on the domestic demand’s recovery trajectory.

On the external side, January trade data came in weak as factories closed for the holiday, at first glance. That said, after accounting for the Tet distortions, an export decline of 4.3% year-on-year in January is rather moderate. One interesting observation is the ongoing divergence in electronics shipments. For the past months, phone exports were main drags, but computer electronics shipments were a strong boost to export growth. Similarly, this is also the trend observed in imports, as Vietnam’s manufacturing is rather import-intensive. As imports fell 2.6% year-on-year, January saw a rather generous trade surplus of over $3 billion, against an average of $2 billion in 2024.

The divergence in electronics exports continues.

The divergence in electronics exports continues.

Despite starting 2025 on a not-so-bad footing, tariff risks nonetheless cloud trade prospects. As we have discussed extensively in prior research, Vietnam has the highest tariff risk in ASEAN, given its large trade surplus with the U.S. That said, there remains a large degree of uncertainty. Given the U.S.’s recent move to grant a 30-day delay each to Canada and Mexico, tariffs are up on the table for negotiations, and decisions could change overnight.

Vietnam’s trade surplus with the US exceeded US100bn in 2024.

Vietnam’s trade surplus with the US exceeded US100bn in 2024.

The question for China vis-à-vis its Asian peers is different. For China, the direction is easier to predict but not the magnitude. However, for other Asian economies, in particular ASEAN countries, the question is whether tariff risks will materialize. Zooming out of the tariff risks, the other question worth considering is: how many companies are willing to move supply chains, which is both time and investment-consuming, given short-term factors? Vietnam’s status as a rising global production hub is not only due to geopolitical factors but also thanks to its improving fundamentals.

Unlike trade uncertainty, Vietnam’s attractiveness as a tourism destination has certainly increased. Its tourism sector broke a monthly record of welcoming more than two million international visitors, jumping close to 40% year-on-year. In particular, the number of mainland Chinese tourists has more than doubled compared to January 2024, narrowing the gap with its pre- pandemic high from 36% in 2024 to only 10% in January 2025.

Foreign tourists to Vietnam reached a record high of over 2 million in January.

Foreign tourists to Vietnam reached a record high of over 2 million in January.

Meanwhile, inflation accelerated 1% month-on-month in January. This translated into a year-on-year print of 3.6%, exceeding market expectations (HSBC: 3%; Bloomberg: 3.1%). The upside surprise was primarily driven by high food (particularly pork) prices and medical costs (9.5% month-on-month). While it is worth keeping a close eye on inflation, we do not think this is concerning as both factors are likely to be seasonal or one-off.

Inflation accelerated to 3.6% in January, driven by food and health costs.

Inflation accelerated to 3.6% in January, driven by food and health costs.

Comments (0)
  • Read More
Indonesia to end incentives for imported CBU BEVs in 2026

Indonesia to end incentives for imported CBU BEVs in 2026

The Indonesian government has confirmed that it will stop providing incentives for imported completely built-up (CBU) battery electric vehicles (BEVs) from 2026.

Southeast Asia - Tue, September 16, 2025 | 9:44 pm GMT+7

Aquatic sector advised to navigate challenges, secure exports to EU, US

Aquatic sector advised to navigate challenges, secure exports to EU, US

Despite positive production signals with growth in 2025 projected at 4.25%, Vietnam's aquatic sector is facing mounting export pressures, particularly strict technical barriers in major markets such as the EU and the U.S.

Companies - Tue, September 16, 2025 | 9:41 pm GMT+7

Vietnam pledges favorable conditions for UK businesses

Vietnam pledges favorable conditions for UK businesses

Finance Minister Nguyen Van Thang has affirmed Vietnam’s commitment to improving its investment environment and creating favourable conditions for foreign enterprises, including those from the UK.

Companies - Tue, September 16, 2025 | 9:29 pm GMT+7

Lotte Shopping plans to open more shopping malls in Vietnam

Lotte Shopping plans to open more shopping malls in Vietnam

South Korean retail giant Lotte Shopping has unveiled plans to open an additional two to three large-scale shopping malls in major Vietnamese cities by 2030, underscoring the country’s growing role in the group’s international expansion strategy.

Companies - Tue, September 16, 2025 | 9:25 pm GMT+7

Vietnam ratifies WTO Agreement on Fisheries Subsidies

Vietnam ratifies WTO Agreement on Fisheries Subsidies

Vietnam officially deposited its instrument of ratification of the Agreement on Fisheries Subsidies at the WTO General Council’s special session in Switzerland on Monday.

Companies - Tue, September 16, 2025 | 9:21 pm GMT+7

What makes NobleGo - Vietnam’s first home-bidding livestream platform - so notable?

What makes NobleGo - Vietnam’s first home-bidding livestream platform - so notable?

NobleGo – Vietnam’s pioneering AI-powered livestream real estate bidding platform developed by Sunshine Group – has completed its first 20 livestream sessions.

Real Estate - Tue, September 16, 2025 | 4:53 pm GMT+7

Japanese retailer Aeon to debut another northern Vietnam shopping mall by end-2026

Japanese retailer Aeon to debut another northern Vietnam shopping mall by end-2026

Japanese-backed Aeonmall Vietnam is ramping up construction on its Aeon Mall Ha Long project in Quang Ninh province, home to Ha Long Bay, with an aim to open it to the public by end-2026.

Industries - Tue, September 16, 2025 | 3:54 pm GMT+7

Hanoi terminates Vinaxuki auto plant project, repurposes land for commercial complex

Hanoi terminates Vinaxuki auto plant project, repurposes land for commercial complex

A long-stalled automotive manufacturing project by Xuan Kien Auto JSC (Vinaxuki) has been officially terminated by Hanoi authorities, and the reclaimed land in Phuc Thinh commune will be repurposed for a new commercial and service complex.

Industries - Tue, September 16, 2025 | 2:44 pm GMT+7

Central Vietnam province reviews investment proposal for thermal power project after Thai EGATi pullout

Central Vietnam province reviews investment proposal for thermal power project after Thai EGATi pullout

Authorities in the central province of Quang Tri are evaluating a proposal from Power Generation JSC 1 (EVNGENCO 1), a subsidiary of state utility Vietnam Electricity (EVN), to take over the Quang Tri thermal power plant project, following the withdrawal of Thai investor EGATi.

Energy - Tue, September 16, 2025 | 1:44 pm GMT+7

Amata to sell stakes worth $46 mln in Vietnam units to Novaland-tied buyers

Amata to sell stakes worth $46 mln in Vietnam units to Novaland-tied buyers

Amata VN, the Vietnam arm of Thailand’s leading industrial park developer Amata, has approved a plan for its subsidiary Amata City Long Thanh Urban JSC (ACLT) to sell its remaining 51% stakes in two entities to local developer Novaland-linked buyers.

Real Estate - Tue, September 16, 2025 | 12:19 pm GMT+7

Vietnam already meets FTSE's criteria for stock market status upgrade: Finance Minister

Vietnam already meets FTSE's criteria for stock market status upgrade: Finance Minister

Vietnam has fulfilled the criteria for a stock market status upgrade by FTSE Russell through reforms aimed at facilitating foreign investment inflows into its market, said Minister of Finance Nguyen Van Thang.

Economy - Tue, September 16, 2025 | 9:36 am GMT+7

Banks should be allowed to distribute, invest in mutual fund certificates: Vietnam's finance ministry

Banks should be allowed to distribute, invest in mutual fund certificates: Vietnam's finance ministry

The Ministry of Finance is proposing a key reform that would allow commercial banks to invest in and distribute mutual fund certificates, as part of a broader plan to restructure the investor base and foster the development of Vietnam’s fund management industry.

Finance - Tue, September 16, 2025 | 8:00 am GMT+7

E-commerce boom a major driver of Vietnam's packaging paper industry growth

E-commerce boom a major driver of Vietnam's packaging paper industry growth

Vietnam's paper packaging industry is entering a period of strong growth, with an average annual growth rate forecasted at 10% until 2030.

Companies - Mon, September 15, 2025 | 10:20 pm GMT+7

Vietnam needs support from UK in developing international financial center: Deputy PM

Vietnam needs support from UK in developing international financial center: Deputy PM

Permanent Deputy Prime Minister Nguyen Hoa Binh has called on the UK and the City of London to continue supporting and accompanying Vietnam in promoting and introducing its international financial center (IFC).

Finance - Mon, September 15, 2025 | 10:12 pm GMT+7

Vietnam enforces 8% capital adequacy ratio for banks from Sept 15

Vietnam enforces 8% capital adequacy ratio for banks from Sept 15

Commercial banks and foreign bank branches in Vietnam must maintain a minimum capital adequacy ratio (CAR) of 8%, including at least 4.5% in Tier 1 core capital and 6% in Tier 1 capital, starting from September 15.

Banking - Mon, September 15, 2025 | 10:04 pm GMT+7

Tool for wood traceability management debuts in Vietnam

Tool for wood traceability management debuts in Vietnam

The Vn-WoodID application has been officially launched in Vietnam, becoming a key tool contributing to wood traceability.

Companies - Mon, September 15, 2025 | 10:00 pm GMT+7