Vietnam remains outperformer in FDI attraction across Southeast Asia: HSBC

The report outlines that despite near-term cyclical challenges to trade, the country’s long-term FDI prospects appear intact. Its manufacturing sector accounts for the bulk of FDI, offering hope that it can climb up the value chain, paving the way for a robust rebound when the trade tide eventually turns. New FDI continues to pour into the manufacturing space, with the figure so far this year already exceeding the total recorded in each of the past three years.

Furthermore, tech supply chain relocation was one of the main focuses of United States President Joe Biden’s visit to Vietnam in September as the two countries moved to elevate their relationship to that of a comprehensive strategic partnership. President Biden announced that US tech companies, including Amkor and Marvell, plan to invest in the Vietnamese market.

A few weeks later Hana Micron of the Republic of Korea joined in by announcing an expansion of its chip production with a US$1billion investment by 2025.

Green shoots in trade

After a challenging first half of the year, the Vietnamese economy recovered at a stronger-than-expected pace of 5.3% in the third quarter.

This can largely be put down to some reprieve in the trade sector, with September marking the first month of annual growth in exports. In particular, China’s surging demand for agricultural products has put a floor under Vietnamese exports, although it is unable to reverse the still-sluggish demand from the US and the EU.

Along with manufacturing, the country’s booming tourism sector is the bedrock of its services, prompting the Government to raise its annual tourism target.

“The biggest surprise to us is the rebound in Vietnam’s manufacturing sector. While it is still too early, in our view, to call a material recovery in the global trade cycle, Vietnam’s trade sector has had a much-needed reprieve recently,” according to HSBC experts.

Although due to base effects, exports saw their first growth in more than six months, reducing the severity of export falls from the double-digits in the first half of the year to less than 2% year on year in the third quarter of the year. While export weakness remains largely broad-based, decent growth in both computer and agriculture shipments offsets some risks.

This trend is also reflected in Vietnamese shipments to major trading partners. While exports to the US, a 30% share of the total, and the EU, a 15% share, have yet to see a turnaround, they have halted further deterioration.

Meanwhile, Vietnamese exports to China, a 15% share, saw double-digit growth sequentially, largely thanks to the impressive growth recorded in agriculture products.

Outside of manufacturing, services remain the bedrock of Vietnamese growth. Overall, the sector which has enjoyed close to 10% year on year growth is tourism-related.

Think tanks stressed that ASEAN has seen a return of tourists to around 60% to 80% of 2019’s levels, with Vietnam’s recovery pace approaching 70% in September. The country welcomed 8.9 million tourists as of September, prompting authorities to upgrade its full-year target to 13 million from the previous figure of eight million.

New forecasts

However, experts revealed that upside risks to inflation have resurfaced, making them upgrade the year’s average inflation forecast to 3.4%

HSBC economists also kept their annual growth forecast at 5.0%, although they now expect the State Bank of Vietnam to hold its policy rate steady at 4.50% until end-2024.