Vietnamese Dong Under Heaviest Pressure in 13 Years
In 2024, the USD/VND exchange rate increased sharply, closing the year at a record high of 25,551 VND/USD at banks. Compared to the end of 2023, the central exchange rate increased by nearly 2%, the exchange rate at commercial banks increased by 4.6%, and the exchange rate on the free market increased by 4.4%.
The State Bank of Vietnam (SBV) had to sell 9.4 billion USD from foreign exchange reserves and issue treasury bills to curb the exchange rate increase. However, the pressure increased at the end of the year when the US Federal Reserve (FED) did not reduce interest rates as quickly as expected, and the USD strengthened due to geopolitical factors.
Governor of the State Bank of Vietnam Nguyen Thi Hong acknowledged the difficulties in managing exchange rates when the market is strongly affected by the actual supply and demand of foreign currencies and the expectations of organizations and businesses. She emphasized that the State Bank of Vietnam will continue to flexibly manage exchange rates to respond to market fluctuations.
Driving force for growth in 2025
Interest rates will remain an important variable in 2024. The SBV has flexibly used tools such as issuing treasury bills and lending via the OMO channel to maintain VND interest rates at reasonable levels, while reducing pressure on the exchange rate. These measures have contributed to stabilizing the market in the context of high interest rates in the US.
However, the interest rate difference between USD and VND still puts great pressure on the exchange rate, especially in the context of foreign capital continuing to withdraw from the market.
Although 2024 is a challenging year, experts believe that Vietnam's economy will remain attractive with stable macroeconomic factors and high growth potential. Efforts to improve the investment environment, upgrade the stock market and attract FDI will continue to be the driving force for development in 2025.
The volatility of the past year is a reminder that financial markets are constantly changing, requiring flexibility and adaptation from regulators, businesses and investors.
Foreign investors net sell record on stock market
2024 witnessed a record net selling by foreign investors, with a total value of more than 3.55 billion USD (more than 93,000 billion VND) across the entire Vietnamese stock market. This is the highest level in history, surpassing the previous strong net selling period in 2021 (58,000 billion VND).
According to Yuanta Vietnam Securities, the main reasons for this situation include the FED keeping interest rates high for most of 2024, while VND interest rates remain low to support economic growth. This causes international investors to prioritize withdrawing capital from Vietnam to seek higher returns in developed markets.
Furthermore, not being upgraded to emerging market status makes it difficult for Vietnam to attract foreign capital, especially from large investment funds with regulations on investing in developed markets.
Next, the greenback continued to appreciate, putting great pressure on the VND/USD exchange rate, causing profits from investments in Vietnam to decrease in value when converted to USD.
Foreign net selling pressure was recorded in most months, especially in the second and third quarters when international capital flows restructured strongly. Only in January 2024 did foreign investors slightly net buy (VND 178 billion), but selling pressure returned immediately afterwards and remained until the end of the year.
Despite strong net foreign withdrawal, the Vietnamese stock market still grew significantly thanks to the active participation of individual investors.
According to statistics, domestic individual investors have net bought more than 81,000 billion VND, helping VN-Index increase by more than 12% in the year. This shows the shift in leading role from foreign investors to domestic investors.
Mr. Nguyen Trieu Vinh, Deputy Investment Director of Vietcombank Fund Management Company, commented: "Individual investors have played an important role in maintaining market momentum, especially when foreign investors withdrew capital at a record level."
