Amid the trade tension that has been felt globally, one star in Asia has been glowing ever brighter. Vietnam has emerged as one of the fastest growing countries in the East. As shown in Chart 1, Vietnam's real GDP growth was 7.1% in 2018, the highest growth rate in more than a decade and only beaten by India in the region.
This economic expansion is mainly driven by Vietnam's transformation into a global manufacturing hub. Chart 3 shows that Vietnam has surpassed many of its neighbors as a global merchandise exporter and is one of the few countries in the region that continues to grow its global market share. None of these trends are likely to be hindered by the recent EU free trade agreement, which was signed on June 30 in Hanoi.
Chart 1: Real GDP growth increasing. Real GDP Growth (%)
Source: CEIC and FTSE Russell, May 2019
Chart 2: Vietnam global manufacturing market share is on the rise—percentage of global merchandise exports
Source: CEIC, FTSE Russell, December 2018
Vietnam is increasing its share of low-end electronics exports as seen in Chart 3. Traditional sectors such as textile and clothing are still important to the Vietnamese economy, but the mix of exports is becoming more diversified.
Chart 3: Vietnam is becoming a hub for electronics manufacturing. Vietnam's market share in different export segments (%)
Source: WTO, FTSE Russell, May 2019
Exports have continued to increase this year as Vietnam has recorded positive growth year-over-year during four out of the five months this year as seen in Chart 4. This is makes Vietnam stand-out in the region and helps make the case that Vietnam is one of the few countries that are benefiting from the relocation of manufacturing due to the recent trade tensions. As an example, exports to the US grew with more than 35% the first quarter of this year compared to a year earlier.
Chart 4: Exports continue to grow—export growth (y-o-y%)
Source: CEIC FTSE Russell, May 2019
In chart 5 it is apparent that the Vietnam equity market suffered less during the heightened volatility in May due to the trade tensions. The FTSE Vietnam Index managed to almost stay flat in May, in stark contrast to other Asian equity indexes that were down almost 10% over the month.
Chart 5: Index Performance 2YR (Total Return USD)
Source: FTSE Russell, June 2019. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
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