Different outlooks for the nearing New Year

As 2024 draws to a close, Vietnam’s economy has weathered a year shaped by a fragile global recovery and a host of uncertainties and risks. For investors, this challenging environment has demanded constant adaptation, reshaping management strategies and reinventing business models. Yet, these very challenges have unlocked new avenues for profit and innovation across diverse investment channels.

The unpredictable potential risks emerging from global political and economic dynamics pose significant threats to Vietnam’s growth recovery. This makes 2025 a pivotal year, where investors are keen to decode both lingering and emerging variables to uncover the most promising opportunities.

Identifying global variables

At the “Investing 2025: Decoding Variables Embracing Opportunities” conference, held recently in Hanoi, Dr. Nguyen Tri Hieu, Director of the Institute for Research and Development of Global Financial and Real Estate Markets, underlined that the impact of the global political-economic environment in 2024 will persist into 2025, accompanied by new challenges. “With Donald Trump assuming his second US presidential term, the world may face intensified trade protectionism, which will significantly impact Vietnam,” he said in his address. “This underscores the importance of meticulous preparation, as 2025 could present numerous economic challenges for Vietnam.”

Exchange rates are expected to fluctuate in 2025, influenced by President-elect Trump’s economic policies. His proposed tax cuts for the wealthy could exacerbate the US budget deficit, potentially leading the government to issue high-interest bonds to address the shortfall. Dr. Hieu explained that a larger deficit may force the US Federal Reserve (Fed) to increase its purchases of government bonds. This Quantitative Easing (QE) approach would expand the Fed’s total assets, inject substantial liquidity into the economy, drive inflation, and potentially prompt a shift from monetary easing to tightening, placing pressure on the USD/VND exchange rate.

Mr. Barry Weisblatt, Head of Research at VNDirect Securities, has a similar perspective. He noted that VNDirect’s earlier forecast of the Fed reducing interest rates three times in 2025 now faces uncertainty due to inflationary risks stemming from President-elect Trump’s proposed policies. With the US Dollar Index (DXY) remaining high, the USD/VND exchange rate will be under significant strain. “We also recognize the risk that the State Bank of Vietnam may need to raise interest rates if exchange rate pressures become unmanageable due to the anticipated shifts in President-elect Trump’s trade policies next year,” he commented.

Dr. Luong Van Khoi, Deputy Director of the Central Institute for Economic Management (CIEM), said President-elect Trump’s new term inherits a substantial government debt burden. Fiscal policy under the President-elect remains unpredictable, while anticipated monetary easing policies will heavily influence exchange rates.

Another critical variable is the impact of potential US tariff adjustments. Dr. Hieu pointed out that President-elect Trump’s “America First” policy could lead to higher import tariffs on countries posting a trade surplus with the US, including Vietnam. “If the US imposes tariffs of up to 60 per cent on Chinese goods and at least 25 per cent on other countries, Vietnam’s exports to the US will face significant challenges, impacting economic growth,” he explained. “Vietnam heavily relies on the US market as its largest export partner. President-elect Trump’s trade protectionist policies, if implemented, would be highly unfavorable for Vietnam.”

However, Mr. Weisblatt provided a different outlook, suggesting that President-elect Trump’s potential tariff policies targeting China, Mexico, and Canada may present opportunities for Vietnam. During his first term, Vietnam’s export growth to the US stood at 25 per cent annually following the US - China trade conflict, especially in B2B exports. “As for whether the US might impose additional tariffs on Vietnamese goods, I think it’s unlikely,” he added. “President-elect Trump’s decisions on tariffs are not solely based on trade surplus data but also on broader issues such as US - China competition and immigration concerns with Mexico. Additionally, he has demonstrated strong relations with Vietnam. Instead of tariffs, the US is more likely to focus on trade defense measures, particularly regarding the origin of exported goods.”

Dr. Khoi added that US policy shifts towards China could redirect investment flows into Vietnam, positioning the country as a new global manufacturing hub. This would not only attract investments in high-tech industries but also in other sectors, creating substantial opportunities for growth. Nevertheless, US policies will have a considerable impact on Vietnam, given that the US is one of Vietnam’s largest export markets and with whom it has a significant trade surplus. President-elect Trump’s stance on imposing tariffs on countries with a trade surplus, including Vietnam, necessitates solutions to maintain balance and mitigate risks associated with potential tariffs.

He also noted that during his presidential campaign, President-elect Trump proposed withdrawing the US from the Paris Climate Agreement. If this becomes a reality, it could significantly affect Vietnam, particularly regarding its net-zero commitment by 2050, as green transition support and investments may decline. Additionally, a US exit from the agreement could lead to increased fossil fuel investments, potentially driving down oil prices.

Exploring investment opportunities

According to Mr. Le Duc Khanh, Director of Analysis at VPS Securities, the stock market is expected to see strong growth in 2025, driven by factors like GDP growth and rising exports. The market could grow by 15-20 per cent, making this a good time for investors to buy and accumulate stocks. Investors in Vietnam may consider stocks such as FPT (in IT), VNM (dairy), chemicals, and rubber industry stocks like DRC and CSM. It is recommended to start with small, exploratory purchases and gradually increase positions.

For long-term investments, investors should focus on sectors like telecommunications, chemicals, fertilizers, natural rubber, tires, seaports, finance (banking, securities, and insurance), retail, and consumer goods. In the short term, sectors such as securities, chemicals, steel, and oil and gas hold promise.

Mr. Nguyen Viet Duc, Head of Digital Business at VPBank Securities, also sees a positive outlook for the stock market in 2025, driven by growth factors. Long-term investors should look at companies with a return-on-equity (ROE) above 15 per cent, with key sectors for investment including energy, oil and gas, real estate, retail, and banking.

He sees strong potential in four investment sectors during 2025. The energy and oil and gas sector is considered a safe bet, as rising inflation typically boosts prices, and currency fluctuations can be mitigated due to gas prices being tied to the USD. Real estate is also recovering, with companies holding large land reserves - particularly in residential and industrial properties - poised for growth. Retail stocks are expected to bounce back with rising consumer demand and spending, supported by the overall economic recovery. The banking sector, which makes up a significant portion of market capitalization, is set to benefit from credit growth, reduced bad debts, and increased government investments. “Cash flow will improve, leading to a more dynamic stock market, with several positive factors supporting the market in 2025,” Mr. Duc emphasized.

Sharing his views on the growing appeal of cryptocurrencies and gold in today’s investment landscape, Mr. Trinh Ha, Financial Market Analyst at Exness, said he believes that with easy access to emerging technologies and a wealth of knowledge, younger investors are moving beyond traditional index funds and are increasingly drawn to clearer investment options like stocks, bonds, gold, and digital currencies. The cryptocurrency market, in particular, has seen strong growth recently, with digital assets now making up about 35-36 per cent of many young investors’ portfolios, alongside tech stocks.

Cryptocurrencies, especially Bitcoin, remain a compelling investment due to fixed supply, which is shrinking rather than expanding. Moreover, Bitcoin is gaining global recognition as a legitimate asset, with the US Securities and Exchange Commission approving a Bitcoin spot ETF. With President-elect Trump’s re-election, ETF flows are expected to shift from gold to Bitcoin, adding further appeal to the digital currency.

Recent studies by asset management firms show a growing acceptance of cryptocurrencies, with Bitcoin and other digital assets now comprising 0-5 per cent of investment portfolios, up from 0-2 per cent. This signals a wider recognition of digital currencies as a viable asset class for diversifying investment portfolios. Figures show that nearly 45 per cent of Bitcoin holders plan to keep their investments long-term, expecting continued price appreciation.

As for gold, prices surged over 30 per cent in 2024, driven by central banks like India, China, and Turkey looking to reduce their reliance on the USD. However, this buying momentum may slow as geopolitical tensions ease. Typically, ETF investments in gold rise during times of uncertainty, but with global stability improving and the US economy stabilizing, funds are likely to shift towards higher-risk, higher-reward assets. Looking ahead, investors should pay attention to the potential effects of President-elect Trump’s policies on the US economy. If inflation rises significantly and the Fed raises interest rates, leading to an economic slowdown, investors may once again turn to gold as a safe haven.