TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

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BÀI TIỂU LUẬN MÔN:

KINH TẾ HỌC CHO NGƯỜI RA QUYẾT ĐỊNH KINH DOANH

ĐỀ BÀI: Business cycle in VN. What are the impacts of business

cycle on investments in VN

Họ và tên SV:
Lớp: Kinh tế đầu tư CLC 64
Mã SV:
Khoa: AEP
GVHD:

Hà Nội , Năm 2023

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 Table of Contents
I. Overview of the business cycle.....................................................................3
1. Definition of business cycle......................................................................3
2. Phases of business cycle............................................................................4
1. Expansion...................................................................................................4
2. Peak............................................................................................................4
3. Recession....................................................................................................5
4. Trough........................................................................................................5
3. Causes of business cycle...........................................................................5
1. Changes in demand.................................................................................6
2. Fluctuations in investment......................................................................6
3. Macroeconomic policies.........................................................................6
4. Supply in money......................................................................................7
5. Other external causes..............................................................................8
4. How does the business cycle impact investment?.....................................8
1. Employment rate and production/output................................................8
2. Inflation...................................................................................................9
3. Interest rate...........................................................................................10
4. Investment behaviour............................................................................11
II. Business cycle impacts on investment in Vietnam......................................12
1. Before 1990 - 2007..................................................................................12
2. Vietnam's economic cycle from 2007 to 2019.......................................15
2.1 Vietnam's economy before the financial crisis (2007-2008)..............15
2.2 Impact of the global financial crisis (2008-2011)...............................17
2.3 Situation of development investment and financial investment in
Vietnam from 2009 to 2011:......................................................................20
3. From 2019 - present...................................................................................23
3.1 2020 witnessed a new contraction due to Covid-19...........................23
3.2 A chance to recover in 2021.................................................................25
3.3 2022: Vietnam’s market post-covid....................................................27
3.4 2023........................................................................................................28
III. What we should do?....................................................................................30
1. On the Government’s part.....................................................................30

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2. On the investors’ part............................................................................32

I. Overview of the business cycle

1. Definition of business cycle

● Business cycles are marked by the alternation of the phases of expansion

and contraction in aggregate economic activity and the co-movement
among economic variables in each phase of the cycle
● Business cycles are composed of concerted cyclical upswings and
downswings in the broad measures of economic activity—output,
employment, income, and sales.
● The alternating phases of the business cycle are expansions and
contractions.
● Contractions often lead to recessions, but the entire phase isn't always a
recession.

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 ● Recessions often start at the peak of the business cycle—when an
expansion ends—and end at the trough of the business cycle, when the
next expansion begins.
● The severity of a recession is measured by the three Ds: depth, diffusion,
and duration.

2. Phases of business cycle

There are four phases of the business cycle - Expansion, Peak, Recession, and
Trough - offer valuable insights into the cyclical nature of economic activity.
By understanding these phases, businesses, policymakers, and investors can
anticipate changes in the economic landscape and adjust their strategies
accordingly.

1. Expansion

During expansion, the economy experiences relatively rapid growth, interest

rates tend to be low, and production increases. The economic indicators
associated with growth, such as employment and wages, corporate profits and
output, aggregate demand, and the supply of goods and services, tend to show
sustained uptrends through the expansionary stage. The flow of money through
the economy remains healthy and the cost of money is cheap. However, the
increase in the money supply may spur inflation during the economic growth
phase.

2. Peak

The peak of a cycle is when growth hits its maximum rate. Prices and economic
indicators may stabilize for a short period before reversing to the downside.
Production levels are at their maximum, and employment is typically high.
However, signs of inflation and resource constraints may start to appear. Peak
growth typically creates some imbalances in the economy that need to be

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corrected. As a result, businesses may start to reevaluate their budgets and
spending when they believe that the economic cycle has reached its peak.

3. Recession

The recession stage starts as soon as expansion ends and economic activity
begins to decline. It lasts until the GDP returns to the point that marked the
beginning of the expansion stage. During a recession, demand begins to decline
almost immediately, but producers fail to adjust their output until the market has
excess supply. Positive economic indicators like prices and wages start to fall at
this point.
This often occurs after a series of expansion cycles. Decreased production,
increased unemployment rates, and decreased consumer spending are all key
indicators of recession. Monetary and fiscal policies are typically implemented
to mitigate the negative effects and stimulate recovery.

4. Trough

The trough of the cycle is reached when the economy hits a low point, with
supply and demand hitting bottom before recovery. The low point in the cycle
represents a painful moment for the economy, with a widespread negative
impact from stagnating spending and income. Economic activity bottoms out,
and businesses may experience losses. Unemployment rates are typically high,
and consumer confidence is low.
The low point provides an opportunity for individuals and businesses to
reconfigure their finances in anticipation of a recovery.

Conclusion: Understanding these phases is crucial for businesses,

policymakers, and investors to navigate economic fluctuations effectively.

3. Causes of business cycle

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 1. Changes in demand

Economists argue that changes in the total demand for goods and services in an
economy wield significant ìfnluence over economic activities. When there is an
increase in demand, firms scale up production to meet heightened consumer
needs, leading to more output, more jobs, higher income and amplified profits.
This surge contributes to an economic boom. However, an excessive demand
can cause prices to go up, creating inflationary pressures. Conversely, when
demand drops, businesses produce less, leading to fewer jobs and less income, a
tough time called a bust. If this lasts a long time, it may cause a severe
economic slump, commonly identified as a depression. The government should
step in to manage these ups and downs by adjusting its spending or taxes to
keep the economy stable.

2. Fluctuations in investment

Much like changes in demand, fluctuations in investments are a key factor

driving business cycles. Investment levels can shift due to factors, such as
interest rates, entrepreneurial interest and profit expectations. High interest rates
can deter borrowing, while low rates stimulate economic activity. Positive profit
outlooks encourage investment, while uncertainties can hinder it. Other factors,
including technological advances, government policies, global economic
conditions, and consumer confidence, also shape investment trends. Striking a
balance between promoting growth and preventing excessive risk-taking is
crucial for economic stability. Policymakers, businesses, and investors must
navigate these factors to anticipate trends and maintain a healthy business cycle.

3. Macroeconomic policies

Macroeconomic policies, encompassing both monetary and fiscal measures,

exert significant influence on the phases of a nation's business cycle. In the

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realm of monetary policies, an expansionary approach seeks to invigorate
economic activity. This involves actions like lowering interest rates and
increasing the money supply to encourage investment and spending.
Conversely, a contractionary stance, marked by higher interest rates and a
reduced money supply, aims to cool down an overheated economy and prevent
inflation. On the fiscal front, an expansionary fiscal policy involves lowering
taxes and increasing government spending to stimulate demand and economic
growth during downturns. Conversely, a contractionary fiscal policy, with
raised taxes and reduced government spending, is employed to control inflation
during economic upswings.Policymakers must carefully consider the specific
economic context and potential trade-offs when implementing these policies.

4. Supply in money

Fluctuations in the money supply significantly impact economic activity,

affecting interest rates, investment, consumption, and overall output and
employment levels. Expansionary monetary policies, increasing the money
supply through measures like lowering interest rates, aim to stimulate economic
growth. However, an overly rapid increase can lead to inflation. On the
contrary, contractionary monetary policies, reducing the money supply,
tightening credit, elevate interest rates, and limit spending and investment.
While effective for controlling inflation, excessive use during economic
downturns may worsen recessions or lead to deflationary pressures. The
business cycle's dynamics are closely tied to changes in the money supply,
alongside factors like fiscal policies, technological advancements, consumer
confidence, and external shocks. The efficacy of monetary policy depends on
contextual factors such as financial intermediation, the structure of the financial
system, and the credibility of the central bank.

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 5. Other external causes

Various factors can significantly impact the trajectory of an economy. During

times of war and unrest, resources are diverted towards producing war-related
goods, leading to a decline in income, employment, and economic activity.
However, post-war reconstruction efforts, such as rebuilding infrastructure, can
stimulate economic growth and recovery. The introduction of new technologies,
like the modern mobile phone, often results in increased investment,
employment opportunities, and higher incomes, providing a boost to the
economy. Conversely, natural disasters such as floods and droughts can
devastate the agricultural sector, causing food shortages, price surges, and
reduced demand for capital goods. Moreover, uncontrolled population growth
can strain an economy if it outpaces economic expansion, leading to diminished
savings, reduced investments, and economic slowdowns. Recognizing and
managing these factors are essential for promoting sustainable economic
development and stability.

4. How does the business cycle impact investment?

1. Employment rate and production/output

As the economy expands, businesses generally see an increase in sales or

demand for their products. They will produce more goods and services to meet
this increase in demand. As businesses need to produce more goods and
services to meet demand, they need to hire more workers. Consequently, the
level of unemployment declines.
If there is speculation or rumours about a recession, mass layoffs, rising
unemployment, decreasing output, or other indications, businesses and investors
begin to fear a recession and act accordingly. Businesses assume defensive
tactics, reducing their workforces and budgeting for an environment of falling
revenues. It is because businesses assume defensive measures and investor
confidence falls during contractionary periods. Many events occur before those

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in an economy are aware they are in a contraction, but the stock market trails
what is going on in the economy.

Fewer people in work means less money coming to the government, and
perhaps more going out (in the form of state benefits). Yet unemployment also
means less money for people to go out and spend on products/services offered
by businesses. This means less sales and lower profits, which applies downward
pressure to growth and, by extension, company valuations (unwelcome news for
shareholders). In an economy with high unemployment, even those with jobs
are often less likely to spend money. After all, job security seems less certain in
such an environment – so people tend to save more in case they come upon hard
times. Therefore investment could decrease

2. Inflation

Inflation is the annual rate of increase in the price level. Inflation decreases
during recessions and increases during expansions (recoveries).

During an expansion: As consumers demand more output (goods and services),

businesses produce more output to meet this increased demand, but they will
eventually reach their productive capacity (their maximum level of supply).
There will be more demand for their output than output available. This pulls
prices up.

During a contraction: As consumers demand less, businesses produce less

output. Some businesses may lower their prices or offer discounts to increase
sales. This leads to lower inflation or deflation.

As inflation soared, the value of the currency plummeted causing consumers

and businesses to lose confidence and less likely to invest. This could

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potentially lead to recession. Moreover, when inflation rises, people tend to save
money for daily expenditures rather than use it to invest.

3. Interest rate

When people/businesses borrow money from a bank, the bank charges them
interest. The interest rate is the percentage they are charged. Example: Tia
wanted to borrow $10,000 from her bank to buy a car. If the interest rate was
5% per year and she took one year to repay the loan, she would have to pay
back the $10,000 borrowed plus $500 in interest. Banks also pay interest to
people/businesses who save money with them (although the rates tend to be
lower than for borrowers). Example: Eddy deposited $100 he received for this
birthday in a savings account at his bank, which paid an interest rate of 2% per
year. After one year, Eddy had $102 in his account – the $100 saved plus $2 in
interest.

The Central Bank influences the economy by carrying out ‘monetary policy’. It
sets the ‘cash rate’, which influences the interest rates offered by commercial
banks to their customers. Raising or lowering interest rates can stimulate or
dampen economic activity if needed, helping to achieve a low and steady
inflation rate.

If the economy is expanding too quickly The Central Bank is likely to raise the
cash rate. Commercial banks will raise interest rates, making it more expensive
to borrow money, and more attractive to save money. People will tend to save
more and borrow/spend less.

If the economy is growing too slowly The Central Bank is likely to lower the
cash rate. Commercial banks will lower interest rates, making it cheaper to
borrow money. People will tend to save less and borrow/spend more.

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 4. Investment behaviour

Business cycles have a material impact on firms' capital investment and that
firms' investment outcomes perform differently at different stages of the
business cycle.

The data shows that during the recovery phase of the economy, the scale of
investment by companies is positively correlated with the macro GDP growth
rate at the 1% level. It indicates that during the recovery phase of the economy,
as the economic growth, companies' investment will increase accordingly, and
the scale of investment will expand. This indicates that in a gradually improving
economy, investors are confident in the market and will therefore choose to
increase capital investment to expand the size of their firms.

During a period of high economic expansion, capital investment by firms not

only does not increase correspondingly but also shrinks. This is because the
economic environment has stabilised, national income is above the level of full
employment, the stimulating effect of increased demand on business investment
has been gradually reduced, and firms prefer to seek stability in a volatile
economy.

The regression results under the recessionary phase indicate that the scale of
firms' investment is synchronised with the economic contraction and that during
the contractionary phase, firms will reduce their business expansion as the
economy declines due to the overall poor macroenvironment and their
pessimistic outlook. This is demonstrated by the positive correlation between
investment level INV and GDP growth at the 1% level.

by dividing the economic cycle into different phases, firms will also choose to
expand in the economic recovery phase as the economy grows. However,

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during the economic expansion phase, due to the uncertainty of economic
fluctuations, companies instead choose to invest more cautiously, and this rapid
economic expansion does not give companies much confidence to invest.
During the recessionary phase, companies also invest in a gradual slowdown.

However the circulation of the economic cycle depends on investment, and the
investment decision depends on the entrepreneur's expectations for the future.
Anticipation is a psychological phenomenon, so it is uncertain. When
expectations are optimistic, investment increases and the economy enters
recovery and prosperity; when expectations are pessimistic, investment is
reduced, and the economy falls into recession and depression. This
interpretation of the business cycle is called the theory of mind.

Investors flee to investments "known" to preserve capital, demand for

expansionary investments falls, and stock prices drop.

It's important to remember that while stock prices tend to fall during economic
contractions, the phase does not cause stock prices to fall—fear of a recession
causes them to fall.

II. Business cycle impacts on investment in Vietnam

1. Before 1990 - 2007

Economic growth and investment opportunities

During the years 1990 - 2007, Vietnam experienced a period of significant

economic growth,Great and very important achievements have been obtained.
Implementing the innovation policy, with a general economic model of building
a socialist-oriented market economy , our country has escaped the socio-

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economic crisis, creating the necessary premises to move into a new period of
development - a period of accelerated industrialization and modernization.

During this period,The annual GDP growth rate reached a stable and high level,
the average GDP increase ranged from 4.4% (1986-1990) to 8.4% (2005). . This
growth has created many investment opportunities in many fields, from
manufacturing to services. Specifically, in the early years of the renovation
process(1986-1990), our country has successfully implement three development
target programs on food and consumer goods including total production value
Agriculture increases by an average of 3.8 - 4%/year; Industry increased by an
average of 7.4%/year, in thereConsumer goods production increases by 13-
14%/year; The value of export turnover increased by 28%/year and especially
exported goods production has been restored.And in the following years (from
1990-2007), our country began an important development step of a new period:
promoting industrialization and modernization of the country.. Despite being
affected by the regional financial and economic crisis (period 1997 - 1999) and
serious natural disasters occurring consecutively, putting our country's economy
before fierce challenges, however, Vietnam Nam still maintains a good growth
rate. About Agriculture, Forestry, and Fishery has slowed down from an
increase of 4.5% (1991-1995) to only an increase of 3.8% (2000-2007); industry
increased from 7.4% -13.3%; Services increased from 5.2% to 12%.

From a country lacking food, each year having to import from 500,000 to 1
million tons of food, Vietnam has become a major rice exporter in the world. In
2005, Vietnam ranked first in the world in pepper exports; ranked second in
rice, coffee, and cashew nuts; 4th in rubber;...These achievements also show
that Vietnam at that time was a country with great potential for economic
development because of its stability and rapid economic growth.

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 Attract foreign investment capital

Since reforming from a centrally planned economy to a market economy model,

socialist-oriented, with State management and regulation, Vietnam has become
a potential destination. of foreign investors due to political stability, abundant
human resources and cheap labor costs. FDI capital helps boost exports,
contributing to Vietnam's trade balance surplus, thereby promoting GDP
growth.. These contributions are increasingly enhanced.In 1991, the amount of
registered FDI capital in Vietnam was 2.07 billion USD, of which the amount of
realized FDI capital was 428.5 million USD, reaching over 20% of registered
capital. The export value of goods of the FDI enterprise sector accounted for
27% in 1995 and has tended to increase gradually from 2005 to present. In
2005, The FDI sector contributed 15.16% to GDP growth. Notably, the event of
Vietnam joining the World Trade Organization in 2007 has sharply increased
registered FDI capital in Vietnam from 21.35 billion USD in 2007 to 71.73
billion USD. In 2008 alone, this shows that expectations are huge. This number
is still increasing steadily despite a slight decrease in 2009 and 2010, but then
continued to increase again and gradually increased to 20.35% in 2019. The
results show that, since reform, Vietnam Nam has attracted a lot of foreign
investment. Firstly, because investors see the growth potential of this country.
Second is becauseVietnam has opened its doors to foreign investment through
favorable policies and continuous improvement of the business environment.

2. Vietnam's economic cycle from 2007 to 2019

2.1 Vietnam's economy before the financial crisis (2007-2008)

Results of implementation of major targets in 2007 compared to the

situation reported to the National Assembly

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Targets 2006 2007

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 Report to the Estimated number
National Assembly at the end of
October 2007 December 2007

- Growth rate of gross domestic 8,17 8,5 8,48

product (GDP) (%)

In there:

Agriculture, Forestry and fishery 3,4 3,5 3,41

Construction industry 10,37 10,6 10,60

Service 8,29 8,7 8,68

- Per capita GDP 720 835 833

- Growth rate of industrial production 17,0 17,2 17,1

value (%)

- Growth rate of agricultural 4,4 4,5 4,6

production value (%)

- Export growth rate (%) 22,7 20,5 21,5

- Import growth rate (%) 22,1 27,0 35,5

- Trade deficit compared to total 12,7 18,7 25,7

export turnover (%)

- Ratio of social investment to GDP 40 40,6 40,5

(%)

- Attract foreign investment capital 12 18 20,3

according to registered capital

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 (billion USD)

- ODA commitment 4,44 5,4

- Consumer price index 6,6 < GDP growth rate 12,63

- Job creation (million people) 1,65 1,68 1,68

- The rate of poor households (%) 19 14,7 14,75

- Reduction in birth rate (%) 0,3 0,25 0,25

Industrial production value is higher than planned; The quality and

competitiveness of some industrial products are improved.
Agricultural production has overcome many difficulties and challenges due to
natural disasters and continues to develop.
Import-export activities continued to achieve many positive results. In general, in
2007 there was10 export products with turnover of over 1 billion USD → 2007 –
a successful year for exports
Investment and development have been quite good, especially capital mobilized
from abroad and capital from the population. Foreign investment capital reached
a record high (20.3 billion USD); ODA commitment from donors is the highest
ever (5.4 billion USD). Total social investment capital in 2007 was estimated at
462.2 billion VND, equal to 40.5% of GDP.

2.2 Impact of the global financial crisis (2008-2011)

Financial crisis of 2008 was considered a black spot for the US economy in
particular and the world in general.The main cause of this crisis stems from the

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boom of the US financial market, especially the real estate market, in which
financial institutions provided unsecured and easy loans to borrowers. home
buyers with poor ability to pay. As home prices fell and the number of borrowers
defaulting on their loans increased, the US housing market collapsed, creating a
series of financial and consumer problems around the world→ spreading to
global financial markets. demand, causing economic recession, increased
unemployment and decreased asset values.

Although Vietnam's financial market is not deeply integrated and does not
depend much on the world financial market, Vietnam's economy depends heavily
on other economies - the ratio of Vietnam's exports to GDP is up to
70%.Vietnam's growth in previous years relied heavily on foreign direct
investment capital flows.Therefore, the financial crisis of 2008-2009 had a strong
impact on the Vietnamese economy. on the following sides:
1. Economic growth slows down: Vietnam's GDP growth in 2008 decreased
compared to previous years. Annual GDP growth decreased from about 8.5% in
2007 to about 6.2% in 2008. This is a sign of the impact of the global financial
crisis on the Vietnamese economy.

2. Decline in foreign investment (FDI): Due to the impact of the global financial
crisis, the amount of FDI into Vietnam has decreased significantly. According to
a report by the General Statistics Office of Vietnam, in 2008, the amount of
newly registered FDI capital only reached about 64 billion USD, down about
70% compared to 2007.

3. Difficulties in raising capital and finance:Due to the impact of the global

financial crisis, raising capital and financing has become more difficult.
Businesses have difficulty accessing loans from banks and international financial
markets.

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4. Strengthen financial control and management measures:The Vietnamese
government has implemented financial control and management measures to
stabilize the economy amid the crisis. This includes strengthening banking
supervision, controlling inflation, and adjusting financial policy.

5. Strengthening international economic cooperation:In a difficult context,

Vietnam has strengthened international economic cooperation, especially with
regional partners such as China, ASEAN and other Asian countries, to strengthen
export and investment markets. private.

6. The stock market declines: The reaction of Vietnam's credit market is quite
negative. Credit sources are scarce, although the State Bank "injected" VND
33,000 billion back into circulation in March 2008, but in the process of
restructuring credits and meeting the requirements to participate in mandatory
bill purchases, commercial banks (NHTM) rejects most business credit requests.
In addition,High inflation causes deposit interest rates to sometimes peak at over
20%/year. With such input, businesses that need capital must accept very high
interest rates to survive. Many production and business units accept the use of
"credit poison" to survive.

7. Price fluctuations and rising fuel prices: putting global economies on red alert
about the energy crisis. SoGasoline prices in Vietnam increased sharply (30%)
in early 2008, and then gradually decrease at the end of the year. Besides, due to
speculation, food prices also increased rapidly this year, causing"fever" food
prices.

→ 2008 was a challenging year for Vietnam's development investment and

financial investment, when the economy faced negative effects from the global
financial crisis. However, the government has taken measures to stabilize the
economy and strengthen international cooperation to overcome difficulties. The
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Vietnamese government has taken many measures to promote investment during
this period. Firstly, is the economic innovation policy, The government has
opened up shop to foreign investment, removing barriers and restrictions for
domestic business and investment. This has created more favorable conditions
for investors and businesses.Secondly, the government has promoted attracting
foreign investment through provide incentives and facilities for foreign investors,
including tax reduction, simplifying administrative procedures and providing
residential land at preferential prices. Thirdly, the infrastructure has been
upgraded including roads, railways, seaports and power generation facilities. This
development has created more favorable conditions for investment projects as
well as expanding the supply chain. Fourthly, Vietnam also have taken measures
to improve the business environmentsuch as simplifying administrative
procedures, reducing risks, creating fair conditions for businesses to operate and
gradually perfecting the Investment Law and Foreign Investment Law. Finally,
that is Establish a policy to attract FDI capital by creating special economic
zones (KEKs). For example, localities that have reached a relatively high level of
development such as Hanoi, Da Nang, Ho Chi Minh,...Priority should be given to
attracting FDI into high-tech industries such as electronics, information,
biotechnology, and modern services to minimize overcrowding in the process of
rapid urbanization and increase in immigrant workers, putting pressure on
resources for infrastructure and social issues.Besides, the government has also
invested and trainedhuman resources to meet the needs of businesses and
investment projects,especially in high-tech and engineering fields. In general,
these policies of the Vietnamese government are very feasible in promoting
investment and minimizing social problems such as unemployment,
discouragement, etc.

2.3 Situation of development investment and financial investment in

Vietnam from 2009 to 2011:

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1. Development investment:

a. GDP and FDI growth:

- Vietnam's GDP grew at about 5-7% per year during this period, although
the growth rate decreased compared to the previous period.
- Data from the General Statistics Office of Vietnam shows that FDI into
Vietnam increased from about 7 billion USD in 2009 to about 8.5 billion
USD in 2011.

b. Government's Invest:
- The government increases investment in infrastructure projects, such as
highways, seaports, and energy projects.
- For example, the expressway construction project connecting major cities
such as Hanoi and Ho Chi Minh City received special attention. North-
South Expressway Construction and Expansion Project (also known as
Trung Luong - My Thuan Expressway).

2. Financial investment:

a. Stock market:
- Vietnam's stock market went through a period of great volatility, with the
VN-Index falling from its peak in 2009 and 2010 due to the impact of the
global financial crisis.
- However, there was a slight recovery in 2011, mainly thanks to economic
stimulus measures and improving global conditions.

b. Public debt and loans:

- Vietnam's public debt increased significantly during this period, with
economic stimulus measures and public investment spending.

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 - Data from the World Bank shows that Vietnam's public debt increased
from about 41% of GDP in 2009 to about 48% in 2011.

c. Monetary and banking policy:

- The State Bank of Vietnam continues to implement monetary policy
measures to stabilize inflation levels and control credit growth.
- These measures include adjusting interest rates, strengthening banking
supervision, and promoting a financial system that does not rely on
foreign funding.

→ During the period from 2009 to 2011, Vietnam witnessed a significant

increase in development investment and financial investment, although it also
encountered many challenges from global market fluctuations. The government
has taken measures to encourage investment and stabilize the economy amid
difficult circumstances.

1. Recovery and development after the crisis (2012-2019)

1. Development investment:
a. GDP and FDI growth:

GDP growth: From 2012 to 2019, Vietnam's GDP increased from about 155
billion USD to about 262 billion USD.
[Source: World Bank]

FDI growth: FDI into Vietnam has increased from about 10 billion USD in 2012
to about 16 billion USD in 2019.

[Source: General Statistics Office of Vietnam]

b. Government's Invest:

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Value of public investment projects: The total value of public investment projects
has increased from about 10 billion USD in 2012 to about 17 billion USD in
2019.

[Source: Ministry of Planning and Investment]

2. Financial investment:
a. Stock market:

VN-Index: The VN-Index has increased from about 400 points in 2012 to about
950 points in 2019.

[Source: Ho Chi Minh City Stock Exchange]

Stock market capitalization: Vietnam's stock market capitalization increased to

nearly 200 billion USD in 2019.

[Source: CNBC]

b. Public debt and monetary policy:

Public debt: Vietnam's public debt has increased from about 50% of GDP in 2012
to about 55% in 2019.

[Source: National Information Center on Public Debt]

Base interest rate: The State Bank's base interest rate decreased from about 8% in
2012 to about 6% in 2019.

[Source: State Bank of Vietnam]

→ Big changes in Vietnam's investment:

a. Diversify investment resources:

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Investment from different countries: In addition to traditional investors from
countries such as Japan, Korea, and the US, Vietnam also attracts investment
from emerging countries such as Singapore and European countries.

Industry diversification: Vietnam has focused on attracting investment in

emerging and potential industries such as information technology, clean energy,
and automobile manufacturing.

[Source: General Statistics Office of Vietnam, Vietnam Investment Review]

3. From 2019 - present

3.1 2020 witnessed a new contraction due to Covid-19

Vietnam attracted USD 143 billion in cumulative FDI over the past 10 years
(2010-2019 inclusive). Of this, 59 percent went into manufacturing – especially
in the electronics, textiles, footwear, and automobile parts industries – as many
companies shifted supply chains to Vietnam.

However, 2020 is a year of great difficulties and challenges for the world
economy in general, including Vietnam. The world economy is forecasted to be
the most serious recession in history, the growth of major economies is deeply
declined due to the negative influence of the COVID-19 pandemic. In March
2020, the government started enacting fiscal and monetary policies to counter
the effects of the pandemic.

Covid-19 surge in the world and Vietnam has had certain impacts on foreign
investment flows into our country recently. However, foreign investors still
maintain good business operations and strongly believe in Vietnam's investment
environment. Many foreign investors remain interested and expect to invest in
Vietnam. Foreseeing the trend, the Ministry of Planning and Investment has
been actively organized teleconferences on investment promotion such as
"Vietnam - a rising star" within the framework of a series of activities focusing

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on ASEAN by Standard Chartered Bank, of which the first event was the
ASEAN Standard Chartered Business Forum 2020, held online with the
participation of Prime Minister Nguyen Xuan Phuc and 4,700 delegates from
around the world, and Vietnam - Singapore Online Investment Promotion
Teleconference.

Although investors’ travel has been supported with thousands of experts

entering into Vietnam, a large number of experts have not entered Vietnam yet,
causing difficulties for business activities as well as new investment decisions
and project expansion. The number of new projects, capital adjustment and
capital contribution and share purchase by foreign investors decreased
compared to the same period the year before. Total foreign direct investment
(FDI) in Vietnam as of 20 December 2020, including newly registered capital,
adjusted registered capital and value of capital contribution and share purchase
of foreign investors reached 28.5 billion USD, down 25% compared to 2019. In
which, there are 2,523 newly licensed projects with the registered capital of
14.6 billion USD, down 35% in the number of projects and 12.5% in the
registered capital compared to 2019.

The above results, though decreased compared to the same period, remain better
than those of many other countries, showing the attractiveness of Vietnam in the
eyes of international investors in the context of the strong decline in global
investment due to the Covid-19 effects.

Although GDP growth in 2020 reached the lowest rate in the period 2011-2020
(at 2.91%), in the context of the Covid-19 pandemic, this was a success for our
country in the group of highest growth rates in the world. With China and
Myanmar, Viet Nam is one of three countries in Asia which has positive growth
rate this year.

26
 3.2 A chance to recover in 2021

According to data released by the General Statistics Office (GSO), Vietnam

recorded a 2.58% GDP growth rate - making it one of the very few countries
with a 2021 growth rate lower than 2020. This is unsurprising, as the nation
went through an extended lockdown in the second half of last year, causing
serious economic ramifications. However, when considering both 2020 and
2021, Vietnam has been one of the only economies to record two consecutive
years of growth since the start of this pandemic.

Vietnam has become the destination of multiple supply chain and

manufacturing relocations, due to strong economic fundamentals and a
favorable investment environment when compared with neighboring markets.
According to the Foreign Investment Agency (FIA), the country still recorded a
total new, adjusted capital and share purchases by foreign investors reached
31.15 billion USD as of December 20 2021, up 9.2% annually.

The figure included 15.2 billion USD poured over 1,738 new projects, 9 billion
USD invested in 985 current projects and 6.9 billion USD worth of share
purchases. The FIA said the total FDI pledges rose but the number of projects
fell sharply as a result of Vietnam’s selective policy which dismissed small
projects with little added value.

Manufacturing was the most attractive sector to foreign investors, receiving

18.1 billion USD, accounting for 58.2% of the total capital pledges, followed by
electricity generation with 5.7 billion USD.

Since 2019, Vietnam has continued to rise as an emerging manufacturing hub in

the region, capturing the bulk of new manufacturing investments. Relocations
from China, or from other parts of Southeast Asia, have driven growing FDI in
recent years. This trend has been a key driver for strong economic performance
during the COVID period.

27
 For instance, while
the pandemic resulted
in a slowdown of
trade with the U.S
which represents the
largest exports market
for the country,
Vietnam exports have
continued to grow and
since 2019, Vietnam has significantly increased its market share within U.S
imports.

Looking ahead, Vietnam is projected to grow at a noticeably higher pace in

2022. This optimism, in part, is due to the high vaccination rate which has
allowed the nation to restore most of its economic activities in late 2021. As we
enter the "living with COVID" endemic phase and short of the country
tightening restrictions, Vietnam is well placed to realize its growth potential
with businesses resuming operations and borders reopening progressively.

3.3 2022: Vietnam’s market post-covid

Việt Nam has emerged as a stronger, more resilient economy over the past
years. It recovered strongly from the low "base" two years ago to shine a light in
a world of challenges and uncertainties. The country’s gross domestic product
grew at 8.02 per cent in 2022, the fastest pace over the past 25 years, backed by
retail sales (reflecting final consumption), investment (especially FDI
disbursement), and impressively increased exports.

In late 2021 and early 2022, Việt Nam had high hopes that public investment
would be the driving force for post-pandemic recovery. That's not to mention a
two-year Socio-economic Recovery and Development Programme from 2022-

28
2023 with support money amounting up to VNĐ350 trillion (US$15.4 billion),
approved by the National Assembly from the beginning of 2022.

Investment disbursement and programme implementation were, however, slow

despite a little improvement in the fourth quarter of 2022. By the end of
November, less than 60 per cent of the public investment plan had been
implemented. About VNĐ60 trillion from the economic recovery and
development package was actually spent. Private investment was also
stagnating; except for foreign direct investment (FDI) disbursement which was
quite good, reaching nearly $19.7 billion, an increase of 15.1 per cent compared
to 2021. Building public confidence, promoting public investment disbursement
and the Recovery and Development Programme will have great implications for
growth in 2023 and beyond.

Disbursement of public investment and the recovery programme is expected to

be accelerated. Along with it, substantial improvement in the investment
environment and a commitment to structural reform will restore market
confidence, thereby boosting investment and consumption.

3.4 2023

Vietnam finished 2023 with a GDP growth rate in Q4 with an increase of 6.72%
but ended with a GDP increase of only 5.05% for the entire year, down from
8% from the previous. The economic performance fell short of Vietnam’s
growth target 6.5% in part due to reduced foreign demand for Vietnamese
goods derived from a general sluggish global economy.

29
This resulted in exports falling to a three-year low as well as a slowdown in
government and foreign investments. Policy shifts towards domestic
consumption as a main driver of economic activity have only partially been
successful in filling in for lack of volume in foreign demand and investments.

Vietnam has witnessed substantial advancements in foreign investments, with

recorded FDI inflows increasing by 32.1% year-on-year (YoY) to reach 36.6
billion USD by the end of 2023. However, it is important to note that while
these gains in investment have materialized, the full benefits and outcomes from
these investments will take some time to manifest. Vietnam continues to be
among the fastest growing economies and has increased the diversification of its
export markets with a larger inclusion of US, EU, and Western Asian markets.

Vietnam experienced a remarkable rise in registered FDI inflows in 2023 with a

total of 36.6 billion USD, 32.1% increase YoY according to the Foreign
Investment Agency (FIA) of the Ministry of Planning and Investment (MPI),
with disbursement of 23.18 billion USD. The main contributors of Vietnam FDI
continue to be neighboring economies. Republic of Korea, Singapore and Japan
are the biggest investors, followed by Taiwan, Hong Kong, and China.

30
Vietnam’s remarkable performance in attracting FDI underscores its appeal to
global investors.

After a challenging 2023 all indications are that 2024 should be a stronger year
for Viet Nam’s economy, driven by a rebound in manufacturing and
improvement in consumer sentiment. In addition, the plunge in interest rates
throughout 2023 should help boost the real estate market after having helped
support the stock market last year.

Viet Nam’s GDP growth is expected to increase to 6-6.5% in 2024 from 5.1%
last year, driven by a recovery in exports, which fell 4% in 2023, to 7% growth
in 2024.

The VN-Index is expected to rise by 10-15%, driven by 18% earnings growth in

the banking sector (which has a 37 per cent weightage in the index) and 33%
growth in the consumer sector (14% weightage).

The index ended 2023 up 12.2% after having been up as much as 24% in early-
September before the VND depreciation prompted the State Bank of Vietnam to
tighten monetary policy, sending stock prices tumbling. But the VND is likely
to be fairly stable this year.

31
III. Solution

1. On the Government’s part

Fiscal Policy:

Counter-Cyclical Fiscal Policy: Governments can adjust taxation and

government spending to counteract fluctuations in the business cycle.
During economic downturns, governments can increase spending on
infrastructure projects, unemployment benefits, and other social programs
to stimulate demand and create jobs. Conversely, during periods of
economic expansion, governments can reduce spending and increase
taxes to prevent overheating and inflation.
● Automatic Stabilizers: Implement policies that automatically adjust

government spending and taxation in response to changes in

economic conditions. Examples include progressive income taxes,
which generate more revenue during periods of economic growth,
and unemployment benefits, which increase during recessions.

Monetary Policy:

● Interest Rate Adjustments: Central banks can use interest rates to

influence borrowing and spending behavior in the economy.

During downturns, central banks can lower interest rates to
stimulate borrowing and investment. Conversely, during periods of
inflation or overheating, central banks can raise interest rates to
cool down the economy.
● Quantitative Easing (QE): Central banks can engage in quantitative

easing, which involves purchasing financial assets such as

government bonds to inject liquidity into the financial system and
lower long-term interest rates.

32
Financial Regulation:

● Strengthening Financial Institutions: Implement regulations to

ensure the stability of financial institutions and prevent systemic

risks that could amplify economic downturns.
● Monitoring Systemic Risk: Continuously monitor the financial

system for signs of systemic risk and take preemptive measures to

address vulnerabilities.

Labor Market Policies:

● Training and Education Programs: Invest in education and training

programs to improve the skills of the workforce and enhance their

employability.
● Flexible Labor Market Policies: Implement policies that encourage

flexibility in the labor market, such as unemployment insurance,

job retraining programs, and labor market flexibility measures.

International Cooperation:

● Coordination of Policies: Coordinate fiscal and monetary policies

with other countries to ensure global economic stability and

prevent imbalances that could exacerbate the business cycle.
● Trade Policies: Pursue open and fair trade policies that promote

global economic growth and reduce the risk of external shocks.

Research and Forecasting:

● Economic Research: Invest in economic research and forecasting

to better understand the drivers of the business cycle and identify

early warning signs of economic downturns.

33
 ● Policy Evaluation: Evaluate the effectiveness of past policies in

mitigating the impact of the business cycle and adjust policies

accordingly.

2. On the investors’ part

The business cycle in Vietnam, like in any other country, typically consists of
four phases: expansion, peak, contraction, and trough. Each phase of the
business cycle has different impacts on investments, and investors need to adapt
their strategies accordingly.

1. Expansion Phase: During this phase, the economy is growing, and

businesses are thriving. Consumer spending is high, and businesses are
expanding. Investors tend to see increased returns on their investments during
this phase. In such times, it's wise for investors to focus on growth-oriented
investments, such as stocks of companies in sectors that benefit from economic
expansion, like consumer goods, technology, and infrastructure.

2. Peak Phase: At the peak of the business cycle, economic growth starts to
slow down. Inflation may rise, and interest rates could increase. This phase
often signals that the economy is reaching its maximum capacity. As an
investor, it's prudent to start reducing exposure to high-risk assets and consider
reallocating investments to defensive sectors, such as utilities, healthcare, and
consumer staples.

3. Recession Phase: Also known as a recession, this phase is characterized by

declining economic activity, rising unemployment, and reduced consumer
spending. Stock markets typically experience downturns during this period.
Investors should focus on preserving capital and consider reallocating assets to
safe-haven investments like government bonds, gold, and defensive stocks that
are less affected by economic downturns.

34
4. Trough Phase: The trough marks the end of the recession and the beginning
of the recovery. Economic indicators start to show signs of improvement, and
investor confidence begins to return. This is an opportune time for investors to
start gradually increasing exposure to riskier assets as the economy begins to
recover. Sectors that tend to perform well during the early stages of recovery
include cyclical sectors like industrials, materials, and financials.

Before 1990-2007:

1. Diversification: Investors diversified their portfolios across different asset

classes, such as stocks, bonds, real estate, and commodities, to mitigate risks
associated with economic fluctuations.

2. Sector Rotation: They engaged in sector rotation strategies, reallocating

investments to sectors that were expected to outperform during specific phases
of the business cycle. For example, during periods of economic expansion,
investors favored sectors like technology, consumer discretionary, and
industrials.

3. Active Management: Many investors actively managed their portfolios,

adjusting asset allocations and investment strategies based on changing
economic conditions and market trends.

4. Hedging Strategies: Some investors utilized hedging strategies, such as

purchasing options or futures contracts, to protect their portfolios against
potential downside risks during economic downturns.

From 2007 to the present:

1. Globalization and Emerging Markets: With increased globalization,

investors have diversified their portfolios globally, including exposure to
emerging markets like Vietnam. They recognize the growth potential of these

35
markets and seek investment opportunities beyond traditional developed
economies.

2. Technology and Information Access: Advances in technology and

improved access to information have empowered investors to make more
informed decisions. They can analyze economic data, monitor market trends,
and execute trades more efficiently, enabling them to react quickly to changes
in the business cycle.

3. Passive Investing: The popularity of passive investing through index funds

and exchange-traded funds (ETFs) has grown significantly. These investment
vehicles provide diversified exposure to various asset classes and sectors, often
at lower costs compared to actively managed funds.

4. Risk Management: Investors focus more on risk management and capital

preservation, especially after the global financial crisis of 2007-2008. They
employ sophisticated risk management techniques and stress-testing
methodologies to assess the resilience of their portfolios against adverse
economic scenarios.

5. Environmental, Social, and Governance (ESG) Investing: There's a

growing emphasis on ESG factors among investors, integrating environmental,
social, and governance criteria into investment decision-making. ESG investing
aims to generate sustainable long-term returns while considering the broader
impact of investments on society and the environment.

Overall, while some investment strategies have remained consistent over time,
such as diversification and active management, changes in market dynamics,
technological advancements, and global economic trends have influenced how
investors adapt to the business cycle.

36
In addition to understanding the phases of the business cycle, investors in
Vietnam should also consider the country's specific economic and political
factors, such as government policies, trade relations, and geopolitical risks.
Diversification across different asset classes and sectors can help mitigate risks
associated with business cycle fluctuations. Moreover, staying informed about
macroeconomic trends and regularly reassessing investment portfolios in light
of changing economic conditions is essential for long-term success in
navigating the business cycle.

37
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