Vietnam's economy grows 7.5% in first half of 2025

Vietnam's economy achieved 7.5% growth in H1 2025, its highest in over a decade, fueled by robust domestic demand, increased exports, and record foreign direct investment, with government reforms accelerating infrastructure projects and driving the Vietnam Index to an all-time high. Despite this strong macroeconomic backdrop, Vietnam Enterprise Investments Limited (VEIL) significantly underperformed, with its NAV up only 0.9% against the index's 6.9% gain, primarily due to $1.6 billion in foreign investor outflows affecting its large-cap holdings. The country faces potential headwinds from global growth uncertainties and trade definition issues.

Analysis

Vietnam's economy demonstrated exceptional strength in the first half of 2025, expanding by 7.5%—its highest rate in over a decade—driven by robust domestic demand and a 14.4% year-on-year increase in exports. This performance was underpinned by significant government reforms, including ministerial and provincial consolidation, which have reportedly accelerated public investment to $36 billion and key infrastructure projects. The capital markets reflected this optimism, with the Vietnam Index reaching an all-time high and rising 6.9% in H1 2025 on surging trade volumes. However, a significant disconnect exists with the performance of Vietnam Enterprise Investments Limited (VEIL), whose Net Asset Value (NAV) grew by a mere 0.9% over the same period. This stark underperformance is attributed to substantial foreign investor outflows totaling $1.6 billion, which disproportionately affected the large-cap stocks central to VEIL's portfolio. While the macroeconomic outlook is strong, the country faces external risks from a potential global growth slowdown and internal uncertainty regarding transshipment definitions that could impact its manufacturing sector.

Key Decisions for Investors

• Investors should differentiate between the bullish macroeconomic outlook for Vietnam and the specific headwinds facing VEIL, whose large-cap strategy has proven vulnerable to targeted foreign capital outflows.
• Before considering a position in VEIL, it is critical to assess whether the $1.6 billion in foreign outflows from its core holdings represents a temporary market dynamic or a more persistent structural shift.
• Given the fund's significant underperformance relative to the broader market, investors seeking Vietnamese exposure may consider alternative vehicles that are less concentrated in the specific large-caps affected by recent outflows.
• Monitor external risks, particularly slowing growth in key markets like the US, China, and the EU, as this could directly pressure Vietnam's export and foreign investment momentum, potentially reversing positive market trends.