Covid's Delta variant dents Vietnam’s economic growth

The economy remains a regional outperformer

(Image credit: © Getty Images/iStockphoto)

For much of the pandemic, “the globe marvelled” at Vietnam’s “incredibly low Covid-19 infection numbers and negligible death rate”, says William Pesek in Nikkei Asia. Yet governments across Southeast Asia became complacent, assuming that “large-scale vaccination… could wait”. Now, thanks to the Delta strain of Covid-19, the region is suffering from its worst wave of the disease since the pandemic began. Less than 3% of Vietnam’s population is fully vaccinated; much of the country has been placed in lockdown.

Stocks stay buoyant

Still, Hanoi has raised its “vaccination ambitions”. The health ministry aims to get 50% of adults jabbed by the end of the year and 70% by the end of March 2022. Investors have a “half-glass-full view”. Bill Stoops of Dragon Capital Group thinks stocks could rise by 10% as vaccination gets going. The benchmark VN index has gained more than 20% since 1 January, but is down by 6% since early July as Delta has taken hold.

Southeast Asia’s Delta woes are putting new stress on global supply chains, say Jon Emont and Lam Le in The Wall Street Journal. “A gap has formed” between surging goods demand in vaccinated countries and “the capacity of sparsely vaccinated manufacturing countries to meet it”. Closed factories and ports have left multinationals in the “lurch”. Adidas, which sources 28% of its apparel from the country, says most of its Vietnamese suppliers’ factory capacity has been unavailable since mid-July”. That could mean $600m in lost sales during the second half of the year.

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There are also growing concerns about coffee supplies. Vietnam is a leading producer of robusta beans, the variety used in instant coffee. A lockdown in the southern city of Ho Chi Minh is delaying shipments. Global coffee prices had already spiked following drought and frosts in Brazil. Strict movement controls mean that GDP now looks likely to grow by 5% this year, down from a previous forecast of 6.7%, says Chua Han Teng of DBS Bank. It’s not just manufacturers that are hurting. In many places “non-essential businesses and restaurants” have been closed, which is also weighing on the domestic service sector. Still, Vietnam is an outperformer: Vietnam’s economy actually grew last year. That should continue. “Growing interest in Vietnam as a production base” is driving strong foreign investment. The economy is “increasingly integrated into the global electronics value chain”.

Profits at Vietnamese firms are set to grow by 11% in 2021, says Mary McDougall in Investors’ Chronicle. That compares with 7% for Asia ex-Japan as a whole. A “young, enterprising and large workforce” should mean that it remains one of the world’s fastest growing economies. “For patient investors, Vietnam has great fundamentals.”

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.