Hanoi (VNA) - Investment management firmVinaCapital said it expects Vietnam’s economy and stock market to “normalise”this year after the COVID-19 pandemic.

In an economist’s note titled “Looking ahead at 2023”,Chief Economist Michael Kokalari said the economy is returning to its long-termgrowth trajectory now that the post-COVID re-opening boom has finished.

He said Vietnam’s GDP growth to slow from 8% last yearto 6% this year, weighed down by the slowing demand for “Made in Vietnam”products from consumers in the US and the EU, but supported by the continuedresumption of foreign tourist arrivals in Vietnam, especially in light ofChina’s recent re-opening, and supported by a surge in the Government’sinfrastructure spending.

Vietnam’s government aims to increase infrastructure spendingfrom 4%/GDP in 2022 to 7%/GDP in 2023, which would help support the country’slong-term economic growth, Kokalari added.

This new infrastructure is needed to help ensure thatFDI inflows continue to flow into Vietnam for years to come, according to theeconomist.

Regarding domestic consumption, he said, the growth ofVietnam’s middle-class is driving reliable growth in the demand for productsand services those consumers desire, which benefits consumer discretionarycompanies. 

The value of the Vietnam dong depreciated by 3% in2022 as compared with 7% average depreciation for Vietnam’s regional emerging market(EM) peers last year, and VinaCapital expected the VND to appreciate by 2-3% in2023. 

“Vietnam’s CPI inflation rate averaged 3% in 2022versus much higher inflation in most other DM/EM countries in the world, but weexpect that figure to tick up to 4% in 2023, largely because China’s re-openingis likely to put some upward pressure on food and energy prices in Vietnam,”according to the economist.

Finally, the consensus expectation is that theVN-Index will increase by over 20% this year, which would imply a normalisationof the stock market’s valuation. 

Global inflation pressures are now abating, whichmeans that the aggressive central bank rate hikes that depressed both developedand emerging market stock markets last year will likely end soon.

VinaCapital expected the Government to take steps toease the liquidity issues currently impacting Vietnam’s corporate bond market,which would result in a resumption of Vietnamese companies’ ability torefinance their maturing debts.

“In our view, instilling confidence back into theVietnamese stock market will be a drawn-out process, but the market’sattractive valuation and solid earnings growth prospects probably explain whyforeign investors purchased 1.1 billion USD worth of Vietnamese stocks in thelast two months of 2022. They were also net buyers of Vietnam’s stock marketfor full-year 2022, the first time since 2019,” according to the note.

For investment themes and sectors, VinaCapital’sresearch team continued to favour the domestic consumption, infrastructure andFDI investment themes in 2023 (unchanged from year’s “Looking Ahead at 2022”report) and added lower interest rate beneficiaries and consolidation as twonew themes for this year./.