In the October 2024 update report, VEIL’s fund managers and analysts (a fund managed by Dragon Capital with $1.8 billion in assets under management) warned of potential market volatility stemming from the future actions of the newly elected US President Donald Trump.
In the immediate term, the US dollar strengthened quickly in October due to expectations of policy changes under President Trump’s administration. This put additional pressure on the currencies of emerging markets, including Vietnam.
The strengthening of the greenback, reflected by the surge in the DXY index, caused foreign capital to continue flowing out of the Vietnamese stock market.
In October 2024, the VN-Index fell by 4.5%, and this downward trend continued into the first half of November. For foreign investors, the losses, when converted into USD, would have been even larger due to the recent depreciation of the VND.
VEIL assessed that the exchange rate would continue to fluctuate in the near future, and this trend would limit the room for Vietnam’s policymakers to further loosen monetary policies. The fund emphasized that this situation underscores the necessity to vigorously implement fiscal policies to stimulate the economy.
 Trump’s second term poses risks of currency and trade volatility for Vietnam
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Cushioning the exchange rate impact
The total US dollar deposits in Vietnam’s banking system have decreased from approximately $42 billion in 2022 to $39.5 billion in 2024, equivalent to a reduction from 12.1% to 8.6% of GDP. This decline, coupled with the State Bank of Vietnam (SBV) selling over $20 billion from its foreign exchange reserves (from a peak of $110 billion), has increased the VND’s sensitivity to USD movements.
According to VEIL, the upcoming maturity of government bonds denominated in USD (worth $1.1 billion) and increased USD demand from domestic firms and individuals also create short-term pressure on the exchange rate.
To stabilize the market, the SBV has reacted swiftly by issuing bills and committing to direct intervention in the foreign exchange market if necessary.
A positive sign is the stability of FDI inflows into Vietnam, indicating that recent exchange rate fluctuations are partly due to domestic speculation. Analysts at VEIL believe that this trend is expected to continue in the short term.
Two paths for trade
In its latest update report, VEIL discussed two potential scenarios regarding trade, in which Trump’s second term could impact Vietnam.
The first scenario involves broad protective measures with high taxes imposed on imports into the US. This could reduce global trade volumes, affecting Vietnam’s $400 billion worth of exports, nearly $100 billion of which are destined for the US market.
This situation risks lowering Vietnam’s GDP growth from 0.9-1.1%, down to 6% in 2025. Simultaneously, it would dampen corporate profit growth to single digits, from the currently projected 16-18% increase.
The second scenario, which VEIL considers more likely, involves the US selectively imposing taxes on specific countries or products. This situation could benefit Vietnam through tariff differentials with China, prompting foreign companies to shift their supply chains. This scenario supports Vietnam’s goal of achieving a 7% GDP growth rate.
Overall, Vietnam’s economic and trade outlook remains relatively positive, bolstered by a growth-oriented administration. “This implies that there are more opportunities than risks,” VEIL concluded.
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