Vietnam’s FDI prospects remain good regardless of external drag: HSBC

Vietnam’s foreign direct investment prospects remain intact despite the country’s underperforming trade activities, HSBC said in its July Vietnam macro economic review.

Reggarding Vietnam’s trade activities, HSBC said the computer and component sector’s export revenues jumped 32% year-on-year in July, but other sectors, including textiles, footwear, and mobile phones continued to suffer double-digit declines.

Despite this underperformance, the country’s FDI prospects remain a supportive pillar to economic growth, equivalent to 3% of GDP in the second quarter of this year, the bank noted.

Although the figure was lower than Vietnam’s past performance, such as over 7% of GDP in 2017, Vietnam is still the second biggest FDI recipient in ASEAN in terms of a percentage to GDP, only behind Malaysia.

Additionally, global technological giants like Infineon, LG, and Foxconn have announced expansion plans in Vietnam, indicating the country’s external sector will rebound strongly once the trade cycle turns.

HSBC also emphasized positive developments from domestic services and inflation. The domestic services sector has continued its role as a pillar of support for the economy, partly thanks to the uplift from international tourists, especially those from China. In July, for the first time in three years, Vietnam welcomed more than one million international arrivals in a month.

Meanwhile, headline inflation rose only 2.1% year-on-year in July, below the country’s target of 4.5%. While robust services mean that inflation will likely decelerate at a slower pace than headline inflation, inflation dynamics have become less of a concern for the State Bank of Vietnam, warranting further monetary support.

HSBC expects the central bank to deliver another 50 basis points rate cut, also the last one in the ongoing easing cycle. Still, some concerns remain, such as the El Nino phenomenon, an possible energy price hikes resulting from state utility Vietnam Electricity (EVN) seeking permission to increase electricity prices.

FDI capital in Vietnam rose 4.5% year-on-year to nearly $16.24 billion in the first seven months of 2023, the first hike so far this year. In July alone, registered FDI hit over $2.8 billion, up 8.9% from June, 41.9% from May, and 85.7% year-on-year, according to the Foreign Investment Agency (FIA).

Out of the $16.24 billion, $7.84 billion was newly-registered capital, a 38.6% increase year-on-year; $4.16 billion was additional capital for ongoing projects, down 42.5%; and $4.14 billion was capital contributions for stake acquisitions, up 60.7%.

Disbursed FDI capital inched up 0.8% to $11.58 billion in the January-July period.