What is your assessment of foreign investment in Vietnam in the past year and ahead?

Overall, the picture for foreign direct investment (FDI) was very healthy in 2024 and its outlook remains strong for 2025. As for indirect investment, Vietnam’s stock market had significant foreign capital outflows in 2024, but we anticipate a return of this foreign capital to Vietnamese listed equities in 2025.

Michael Kokalari, the chief economist for VinaCapital

In 2024, FDI disbursement rose by about 9 per cent to $25.4 billion, which is roughly 5 per cent of Vietnam’s GDP. What we call planned FDI (which tends to become actual disbursed investment 1-2 years later) rose by 10 per cent in 2024 to $33.7 billion, equivalent to roughly 7 per cent of GDP.

While headline registered FDI declined by 3 per cent to $38.2 billion, that figure is distorted by capital contributions, which fell by 48 per cent to $4.5 billion, driven by the impact of Sumitomo’s $1.5 billion investment in VPBank in 2023. Given this distortion, it is more meaningful to focus on planned FDI, which strips out capital contributions and is a leading indicator of disbursed investment in the next year.

In 2025, we expect disbursed FDI to grow by 7-10 per cent, in line with the growth of last year’s planned figures. However, planned FDI in 2025 may see a modest decline as it may take some time for foreign investors to understand that the new US administration will not have a negative impact on Vietnam’s ability to export to the United States.

And foreign investors may also take more time to become comfortable with Vietnam’s global minimum tax and the investment support fund. It could take more than a year to address investor concerns around these, and this may lead to lower planned figures in 2025.

On indirect funding, in 2024, investors withdrew nearly $4 billion from Vietnam’s stock market amid concerns about the depreciation of VND, which fell 5 per cent in 2024.

In 2025, we expect foreign capital to return to Vietnam’s stock market, partly because of the acceleration in earnings growth of listed companies from 13 per cent in 2024 to 17 per cent in 2025. Furthermore, the market’s valuation remains attractive at a 12x forward price-to-earnings ratio, which is one standard deviation below the VNI’s 10-year average and 20 per cent below the valuation of Vietnam’s regional peers.

Do you have any recommendations for the government to support the economy and the stock market?

The easiest way to stimulate consumer spending and to boost Vietnam’s GDP growth in 2025 is to speed up real estate project approvals and to ramp up infrastructure spending. Longer term, Vietnam should focus on moving up the manufacturing value chain and realising its opportunities in AI and semiconductors.

Strengthening Vietnam’s higher education system is essential to realising Vietnam’s high potential in high-tech industries. All of these would immensely support VinaCapital’s investment activities.

Furthermore, the successful upgrading of Vietnam from a frontier to an emerging market would boost investor sentiment and help pull in more capital into the stock market. Vietnam now meets nearly all of FTSE’s criteria to be considered an emerging market, following recent administrative reforms that bring the stock market’s functioning closer in-line with international standards. Investor sentiment is also currently being boosted by growing expectations this upgrade will come in 2026.

Finally, the government’s focus on streamlining bureaucratic processes are important steps for stimulating the economy in the long run. By reducing inefficiencies, accelerating execution, and reallocating resources, the government can significantly expand funds available for development and create a more conducive environment for business growth and investment.

Recent legislation passed across various sectors, including real estate, reflects a commitment to reform, which can unlock new opportunities for growth.

What is VinaCapital’s investment strategy in Vietnam going forward?

Our investment strategy encompasses both private and listed companies. While specific themes may evolve year to year based on circumstances, our consistent focus over the years has been investing in firms benefiting from the growth of Vietnam’s emerging middle class.

Vietnam has a rapidly emerging middle-class accounting for about 13 per cent of the population, forecasted to reach 26 per cent by 2026 and 33 per cent by 2030, according to the World Bank. By 2030, Vietnam is expected to have a middle-class that is two-thirds the size of Thailand’s.

This growth offers opportunities for companies targeting domestic consumption, as product penetration rates remain low compared to the rest of emerging Asia. For example, credit card penetration is 80 per cent below Thailand’s, and per-capita milk consumption is half that of Thailand.

Beneficiaries of this growth include companies that sell goods and services to the middle-class, such as healthcare providers, retailers, and several others. Indirect beneficiaries are those supporting middle-class growth through infrastructure, logistics, and financial services.