In 2023, Vietnam’s exports recorded negative growth for the first time since the global financial crisis, severely impacting the GDP growth in 2023 as export value reached an average of 90% of GDP in the period 2019-2022. Exports continued to increase in the fourth quarter of 2023, and surged by 42% compared to the same period in January 2024, thanks to a 33% increase in high-tech electronic export products (accounting for one-third of Vietnam’s total export value).
The high growth in January 2024 resulted from a low comparison base due to the decrease in Vietnam’s exports in early 2023 (exports decreased by 12% in the first quarter of 2023) and it coincided with the Lunar New Year holiday in 2023. However, the growth in January 2024 was impressive, despite being during the holiday season and/or due to the decline in exports in the previous year (exports increased by 6.7% compared to the previous month in January 2024). More importantly, VinaCapital expects Vietnam’s export recovery to continue its rapid growth in the coming months.
American companies placed excessive orders for “Made in Vietnam” products during the supply chain disruption caused by COVID-19 and had to cut back on orders for these products last year to reduce inventory. However, after the fastest inventory reduction in over 10 years, that trend is about to end.
Therefore, Vietnam’s export orders have rebounded in January 2024. The same is happening in China, where new export orders significantly improved in the previous month (despite continued decline, but at a slower pace).
VinaCapital expects Vietnam’s export orders to continue increasing in the coming months due to the astonishing strength of the U.S. economy, as evidenced by the highest consumer confidence since the post-COVID-19 boom.
Export growth driven by electronics and Lunar New Year
The strong growth of Vietnam’s exports in January 2024 was due to nearly 60% growth compared to the same period in the export of computers and electronic products. Global PC revenue (personal computers) decreased by 30% compared to the same period at the beginning of 2023, but rebounded later in the year, partly due to users upgrading to higher configuration machines to handle artificial intelligence (AI). Global smartphone revenue also rebounded for the first time in 2 years at the end of 2023, although the recovery is not as significant as in the computer segment because new products lack attractive features to incentivize user upgrades. Vietnam’s smartphone exports increased by 16% compared to the same period in January 2024, thanks to the launch of the new Samsung S24 smartphone model.
Finally, another reason contributing to the strong growth of Vietnam’s exports in January 2024 is that this month had more than 25% more working days compared to January 2023 – due to the Lunar New Year holiday taking place from January 21-27, 2023. This simple calculation shows that exports should actually increase by 25% in January 2024 based on the way of counting based on more working days, so the 42% growth of exports in January is impressive even when taking into account the holiday period.
Economic support
The manufacturing sector grew 19.3% compared to the same period in January 2024, so export growth exceeded production growth. This means that manufacturers’ inventories decreased in the previous month (Vietnam’s PMI index in January 2024 also confirmed the decline in finished goods inventory). The combination of inventory reduction and increasing new orders implies that manufacturing activities in factories in Vietnam will need to be intensified to meet the high demand for “Made in Vietnam” products.
Manufacturing accounts for nearly 25% of Vietnam’s GDP, so boosting manufacturing activities will drive GDP growth. Moreover, nearly 10% of Vietnam’s workforce is employed by FDI companies with relatively high wages. According to the General Statistics Office, FDI companies reduced their labor force at the beginning of 2023, which is also a reason for Vietnam’s GDP growth of only 3.3% in the first quarter of 2023, but labor in the manufacturing sector recovered after last year’s cuts. Factory labor wages also recovered by 5-7% after hitting rock bottom last year.
Therefore, the economy will be boosted by increased manufacturing activities and higher consumer spending this year, supported by increased employment in the manufacturing sector. Consumer confidence and domestic consumption, weak points in 2023 due to labor cuts and issues in the real estate sector, will recover. While strong growth in consumer spending is not expected in the first quarter, VinaCapital still expects higher consumer spending and domestic consumption in the later stages of this year.
Stock market support
VinaCapital expects domestic investors to pour more money into the Vietnamese stock market in the first quarter and throughout the year due to the following reasons:
First, interest rates on bank deposits in Vietnam are near their lowest levels.
Second, the broad-based economic recovery as discussed above will boost corporate profits – especially in the banking and consumer goods sectors.
Third, the market valuation is at a very attractive level (VN-Index is trading at 10x FY24 P/E, almost 2 times below the standard deviation compared to the 5-year average P/E and lower than the valuation of emerging markets in the same region by 25%).
In addition, the recovery of the real estate industry in Vietnam will take more time as measures to address market issues are still being implemented. Therefore, the stock market is currently the most attractive channel for individuals to invest in the upcoming period. Of course, not all stocks will succeed and some companies may not have positive prospects. VinaCapital is focusing on identifying companies with profit growth potential of over 20% this year and noting that many such companies are currently trading at very low valuations.
