Michael Kokalari, chief economist at Vietnam-headquartered investment manager VinaCapital, shares his insights on the outlook for Vietnam’s economy and asset allocation in 2025.

The strong US economy supported Vietnam’s GDP growth in 2024. However, domestic factors will drive the economy in 2025 because Vietnam’s economic prosperity is linked to the US, and export growth to the US is set to slow in 2025, an investment firm argues.

Michael Kokalari at VinaCapital said that Vietnam’s government is planning policy measures that should mitigate the impact of that slowdown, but drastic measures will be needed to achieve the government’s 2025 GDP growth targets, which some officials have mentioned is as high as 8 per cent. 

The comments come as Vietnam continues to attract interest as one of the more vigorous Asian frontier/emerging market economies. This news service spoke to VinaCapital on its views as recently as August last year. And we have spoken to another specialist on Vietnam – Dragon Capital – on its positioning. 

Kokalari outlines below three key points to help investors gain a better understanding of Vietnam’s economy and stock market in 2025: 

• Domestic factors will determine 2025 GDP growth: Vietnam’s exports to the US surged in 2024, as did foreign tourist arrivals, but the growth of both is set to slow in 2025. Many analysts underestimate how much slower export growth will weigh on Vietnam’s 2025 GDP growth, but government initiatives and improving consumer sentiment could help sustain a 6.5 to 7 per cent growth in 2025. 

• The government is in the driver’s seat: Government officials recently announced a raft of measures to boost Vietnam’s economy, including increased infrastructure spending and serious structural reforms. These measures will boost long-term GDP growth, but may not be sufficient to offset slower export growth in 2025 â€“ which means more drastic measures may be required to meet growth targets. 

• Vietnam’s “Trump Risk” is overstated: Vietnam and Mexico were the biggest winners during US president Donald Trump’s first administration. Kokalari sees minimal risk of Trump’s tariff policies derailing Vietnam’s growing economy – in sharp contrast to claims published in some newspaper articles since his election – but Vietnam has the third-largest trade surplus with the US. Vietnam will need to take urgent steps to reduce the country’s trade surplus with the US to avoid being targeted by Trump at some point. 

Next, the VN-Index is up 6.8 per cent year-to-date, despite record selling by foreign investors, which was partly prompted by a near 5 per cent year-to-date depreciation in the VN Dong. “The resilience of Vietnam’s stock market, despite nearly $4 billion of net foreign selling, coupled with a very attractive valuation, means that the VNI would not need much of a catalyst to continue climbing in 2025. However, 2025 could be a “rollercoaster year” for both the stock market and economy,” Kokalari said.  

Concerns related to Trump’s tariffs, combined with slower export and GDP growth, could weigh on the VN-Index, and on the value of the VN Dong in the first half of 2025. In the second half of the year, Vietnam’s GDP growth should accelerate if, and when, the government takes action to support the economy, and USD-VND depreciation pressures should ease along with concerns about Trump’s impact on Vietnam. 

Domestic factors to drive Vietnam’s economy in 2025 
Vietnam’s economy is closely linked to the US. Exports to the US surged by well over 20 per cent this year, versus about a 10 per cent drop in 2023, which is the main factor supporting Vietnam's 2024 GDP growth. That surge was in-turn driven by a 40 per cent jump in exports of electronics and other high-tech products to the US. However, Kokalari expects the extraordinary increase in exports to the US to moderate in 2025 partly because the US economy is likely heading for a “soft landing” economic slowdown. 

Additional reasons to expect slower export growth in 2025 are related to the US inventory re-stocking cycle. Furthermore, exports across Asia are currently being boosted by “pull-forward” demand in the lead-up to Trump taking office – that will lead to lower demand. Consequently, Vietnam’s manufacturing output growth will likely drop in 2025, since most products produced there are sold to overseas customers. 

That said, Kokalari does not expect Vietnam’s exports and/or manufacturing output to shrink in 2025 because a steady inflow of FDI ensures that more factories begin producing and exporting products in Vietnam every year. Also, despite the expected slowdown in manufacturing output growth in 2025, Kokalari expects Vietnam to achieve 6.5 per cent GDP growth because he expects the composition of the growth to transition to more domestically-driven factors. 

Vietnam’s government has also indicated that it will increase infrastructure spending in 2025. Hopes are high that this and other measures will make consumers more confident to increase their spending. Kokalari anticipates a pickup in consumer spending in 2025 for a different reason: he expects Vietnam’s government to take significant steps to unfreeze the real estate market. Kokalari believes that a recovering real estate market would have a far greater impact on both consumer sentiment than increased infrastructure spending.

The surge in Vietnam’s exports to the US that supported Vietnam’s GDP growth in 2024 is likely to moderate in 2025, but Kokalari expects domestic factors, including a ramp-up in government infrastructure spending, a revival of the real estate market, and a recovery of consumer spending, to help sustain GDP growth at about a 6.5 per cent pace in 2025, in line with the National Assembly’s official target and with 2024 GDP growth.

In the first half of 2025, Kokalari expects that GDP growth is likely to be slow and the VN-Dong is likely to depreciate, but both will probably be reversed by year-end. He sees any dip in the stock market as a buying opportunity. His preferred sectors to own in 2025 include: real estate, banks, consumer goods, materials, and IT.

Kokalari also believes that the long-term growth prospects of the logistics and industrial park sectors remain attractive. Vietnam’s ongoing industrialisation will continue for years to come, fuelling demand in both sectors. “Vietnam’s growing middle class will also drive the growth of e-commerce in Vietnam, which in turn will drive demand for “last mile” services and cold chain logistics in Vietnam,” he concluded.