Update Vietnam
While economic growth is under pressure in developed countries, we see the opposite in Vietnam. In the first half of 2022, growth was surprisingly 6.4% versus the government forecast of 5.1% -5.5%. Based on the consensus forecast in Bloomberg, growth will continue to be high in the coming years, between 6.5% and 7% per year.
Given the friendly investment climate, political stability and increasing consumer spending, many foreign companies are eager to invest in Vietnam. Just before the corona pandemic, Foreign Direct Investment reached a record level of USD 20.4 billion. Vietnam will continue to benefit from the restructuring of supply chains in Asia in the coming years. Businesses no longer want to be solely dependent on China. Samsung, Intel, LG, Nike and Adidas have already moved part of their production to Vietnam. Another reason is that the population in Vietnam is well educated and wage costs are only a third of that in China.
The currency is stable and is supported by increasing foreign exchange reserves. Vietnam's reserves have increased eight-fold over the past decade to more than USD 100 billion. Inflation is also under control and is expected to reach 3.8% this year, still below the government target of 4%.
Nevertheless, the government is somewhat concerned about exports, because of the recession risk in Europe and the US. A huge stimulus package has been launched to counter any headwinds. The package amounts to USD 15.2 billion (4.1% of GDP). The bulk of the package will be invested in 2023. For example, a lot of money goes to infrastructural works, such as the further development of the North-South highway between Hanoi and Ho Chi Minh City. This will boost real estate prices along the route and allow further development of industrial parks and cities in the periphery. It is also important that the transport costs can be reduced in this way, because these are higher than average in Vietnam.
For the coming years, exports will also be supported by the new trade agreement between Europe and Vietnam (EVFTA). This makes it easier and cheaper for the EU and Vietnam to market products or services on each other. For example, it has been agreed to abolish 99% of the mutual import duties within 10 years. The Netherlands is one of Vietnam's most important European trading partners. In 2020, the volume of Dutch exports to Vietnam was almost €1 billion and imports were €6 billion.
If we look at the stock market, we see that the benchmark index has fallen by 16.8% (measured in euro) since the start of the year. The TCM Vietnam fund managed to limit the decline to 3.85%. It is a well-known fact that the fund is more resilient to corrections due to its selection of dividend stocks and even distribution across stocks. We saw that this does not detract from the upside potential last year, when the fund was one of the strongest rising funds on the Dutch stock market with a return of over 72% and also outperformed the benchmark by far.
Despite the fact that the stock market is under pressure this year, local investors are enthusiastic. In the first half of this year, no fewer than 1.8 million new investor accounts were opened in Vietnam, increasing the total to 6.1 million trading accounts. This equates to 6% of the population, which means that there is still a lot of room for growth if you compare it with the penetration rate in, for example, Taiwan (50%) and South Korea (90%).
