“‘Made in Vietnam’…is making its mark on the global stage”, says investment fund Vietnam Holding. “Manufacturers from all over the world are looking at Vietnam as part of their relocation strategy to effectively diversify and reduce supply chain risks”. Apple recently moved some iPad production into the country, joining firms such as Samsung and Intel that already have a significant presence, partly in response to manufacturing delays caused by lockdowns in China.
The textile industry is also booming, says Tomoya Onishi in Nikkei Asia. Exports are on course to hit an all-time high of $22bn in the first half of 2022, a 23% rise on last year. Numerous free trade deals and the post-pandemic boom in the West have turned Vietnam into the world’s second-largest clothing exporter.
Things looked very different last summer, says Rodion Ebbighausen in Deutsche Welle. A surge in Covid-19 cases saw the likes of Samsung, Apple, Nike and Zara forced to close factories for weeks. GDP fell 6% year on year in the third quarter. But since then Hanoi has taken “a pragmatic approach”, helped by the use of Western vaccines (unlike China).
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That has enabled a reopening that contrasts markedly with the situation in China, says Daniel Müller of the German Asia-Pacific Business Association. Even Chinese electronics groups “are moving facilities to Vietnam”.
Still, Vietnam faces plenty of economic challenges of its own. Deep integration with global supply chains leaves it vulnerable to ongoing disruptions emanating from Shanghai. With foreign trade representing 209% of GDP, the country is also heavily exposed to fluctuations in world trade.
Cleaning up Vietnam’s Ho Chi Minh bourse
Corruption is also a big weakness, says Philip Heijmans on Bloomberg. The ruling Communist party has recently launched a crackdown – including firing the head of the Ho Chi Minh bourse and the chair of the State Securities Commission – over claims of market manipulation and “illicit profits” on the exchange. In a “closely controlled, one-party state” it can be difficult to know what is really going on, but the firings appear to signal a desire to clean up the exchange.
However, that seems to have rattled investor confidence. The benchmark VN-Index is now down by 21% since its January peak, after a superb run that saw it gain 120% from its lows in late March 2020.
Still, while domestic retail investors have retreated from the market, foreign institutions seem to be “buying the bear”, says VinaCapital Vietnam Opportunity Fund. Foreigners were net buyers of another $151m in stocks in May after buying $175m in April. And, importantly, the sell-off has brought valuations down to just 12 times expected 2022 earnings – not a bad price for a country where GDP looks set to grow by at least 6.5% this year.
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