Economic growth and market upgrade to draw capital

Vietnam is among the world's fastest-growing economies with an average GDP growth rate of about 6.5% per year in the period before the COVID-19 pandemic. The target of economic growth in 2021-2025 at 6.5-7% per year was set out at the 13th National Party Congress despite the fact that the economy was severely affected by the COVID-19 pandemic in 2021. However, VinaCapital forecasts that this growth can still be maintained in the 2023-2025 period.

High economic growth will support companies listed on the stock market. In 2023, the business results of listed companies may be affected by the slowing growth of exports and consumption and high interest rates. The earnings per share (EPS) growth is forecast to be in single digits in 2023.

However, from 2024, when inflationary pressures are gone, central banks around the world can loosen monetary policy to stimulate the economy, and at the same time, the internal difficulties and challenges of the economy will be tackled, Vietnam's economy will recover, and the stock market's EPS growth is likely to return to double digits.

Infrastructure investment will remain a priority focus of the Government for many years to come and will have a positive impact on the economy in the long term.

In July 2022, the Government issued Resolution No. 86/NQ-CP on the development of a safe, transparent, efficient and sustainable capital market in order to stabilise the macro-economy, and mobilise resources for socio-economic development.

The Resolution stressed the need to urgently implement measures to upgrade Vietnam's stock market from the frontier market to the emerging market to attract investment capital. Currently, the stock exchanges and securities companies are testing the new trading system KRX, which can meet the requirements of launching new products, shorten the transaction time, and help the Vietnamese stock market meet the requirements of upgradation.

According to VinaCapital, the growth prospect of Vietnam's economy in the next 3-5 years and the prospect of upgradation will be an important driving force to attract cash flow from both domestic and foreign investors. The size of the stock market will continue to expand thanks to increased liquidity and there are still many new companies likely to list in the coming years.

Both the Vietnamese economy and stock market are still in a high growth phase for at least the next five years, VinaCapital said.

VinaCapital also cited factors that are forecast to positively affect the market in 2023, including inflation, interest rates, exchange rates, public investment, and China's reopening.

Specifically, global inflation is likely to have passed its peak. The Bloomberg Global Commodity Index peaked in June 2022 and was down about 16% by the end of 2022. US inflation also peaked at 9.1% in June 2022, from where it started decreasing.

Central banks will be less aggressive in tightening monetary policy. In 2022, the US Federal Reserve (Fed) raised interest rates seven times. The Fed is expected to continue to raise interest rates in 2023, but the increase will be much less than in 2022 as inflation pressure has subsided.

Pressure on domestic interest rates and exchange rates has decreased significantly. Specifically, the overnight interbank interest rate fell below 5.0% by the end of 2022. Also in December 2022, credit institutions agreed to apply the maximum deposit interest rate of 9.5% for all tenors, while previously, there were some small banks that pushed deposit rates up to 11-12%.

In addition, public investment will be speeded up in 2023. The National Assembly has approved a public investment plan in 2023 with a total capital of over VND700 trillion, an increase of about 25% compared to the plan in 2022.

In addition, China ending the zero-COVID policy and reopening the economy will have a positive impact on the Vietnamese economy, especially the tourism sector. In the period before the COVID-19 pandemic, Chinese tourists accounted for nearly one-third of international visitors to Vietnam. In addition, the reopening of China's economy will help reduce input costs for Vietnamese manufacturing enterprises using materials imported from China, and will promote exports from Vietnam to China, especially for agricultural products, VinaCapital forecasts.