Research Center

This report delves into the current dynamics of U.S. G -Bond yields rising and its potential impacts on Vietnam. We explore the driving factors behind the surging yields, including term premiums, short-term rate adjustments, economic outlook, the influence of Treasury supply versus overseas demand, and Fitch’s downgrade on U.S. ratings. Additionally, we analyze the perspective of Federal Reserve leaders regarding rising yields and their potential to act as a substitute for rate hikes.

We predict economic activities to accelerate in 4Q23 with a growth rate of 7.5% YoY, resulting in an increase of 5.18% YoY for 2023. On the upside, we expect an impressive turnaround in exports due to the increasing demand from the U.S. and China, especially the inventories of U.S. wholesalers and retailers becoming leaner. Besides, the promising public spending continues to drive the investment demand to grow significantly. On the downside, we predict domestic consumption to grow at a softer pace in the last quarter due to the gloomy income prospect, especially in the manufacturing sector, while inflation could elevate in the next period associated with global movements of food and energy prices. Notably, upward pressure on the exchange rate could persist due to seasonally thinner trade surplus and rising carry trade activities. However, we weigh more on SBV’s efforts to secure FX stability and predict USDVND to decline modestly in the last.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 50.5 in August 2023 from 48.7 in the prior month. This was the first increase in factory activity since February, as output, new orders, and foreign sales all returned to expansion. Overall, the PMI's return to growth in August is a welcome development for the Vietnamese economy. It suggests that the manufacturing sector is recovering and is well-positioned to contribute to the country's economic growth in the coming months.

U.S July Retail sales and Vietnam T&G exports According to the latest data from the U.S. Census Bureau, retail sales in the U.S. increased by 0.7% MoM in July of 2023, marking a fourth consecutive rise, and beating market forecasts of a 0.4% increase. In more detail, US clothing store sales grew 1.34% YoY in July, slightly decelerated from 2.69% in June, but remain higher than the one-year slowest growth of 0.32% in April. The potential upturn in US clothing sales, given a relatively strong correlation with Vietnam T&G exports, subsequently benefiting this export sector in the latter half of 2023.

Although the economic performance picked up in 2Q23 in the late stage of the global interest rate hike, we believe that the acceleration of economic activities will need more time to be material due to the insignificant improvement of external factors and the weakening recovery in domestic consumption. On the upside, public investment will continue to be a spotlight in 3Q23 thanks to the government's effort in realizing the significantly higher workload than last year. In addition, the well-controlled inflation and stable exchange rate provide more space for the monetary authority to follow the easing tendency in the next quarter.

The US-China tech war has led to significant impacts on manufacturers, resulting in a shift from China to Vietnam. The escalating trade tensions between the two countries, coupled with increasing tariffs and export controls, have created a challenging environment for tech companies reliant on Chinese manufacturing. As a result, many manufacturers have started diversifying their supply chains by moving production to Vietnam.

The escalating US inventory-sales ratio will likely have adverse effects on US import demand, subsequently impacting the export performance of other countries, including Vietnam. The higher the inventory-sales buildup, the lower the US import orders from abroad, which in turn dampens the export growth of trading partners. Given Vietnam's dependence on the US as a major importer, the negative relationship between the US inventory-sales ratio and Vietnam's export is of particular concern. Monitoring the US inventory-sales ratio becomes crucial for assessing its potential impact on Vietnam's export-driven economy.

The Chinese economy has made a rebound in 2023, with major economic indicators seeing steady expansion, offering the latest evidence that the world's second-largest economy is set to secure a powerful recovery this year. China's GDP grew by 4.5% in the first quarter of 2023, 0.5% higher than market expectations. Notably, it marked the fastest pace of growth since the first quarter of 2022, indicating that China’s economic recovery is picking up steam

The Chinese economy has made a rebound in 2023, with major economic indicators seeing steady expansion, offering the latest evidence that the world's second-largest economy is set to secure a powerful recovery this year. Investors and economists pay special attention to PMI reading each month to get a pulse on the world’s second-largest economy.