Việt Nam’s benchmark VN-Index has risen since the ratification of the EU-Việt Nam trade agreement on the back of listed firms whose exports would be boosted by the deal.
However, securities firms have warned their increased share prices may not be sustained as those companies face some internal challenges in meeting the EU’s requirements.
Logistics and industrial property are two economic sector that would benefit from the transfer of capital from the EU to Việt Nam as the free trade agreement has opened the door for more foreign investors.
Việt Dragon Securities Co (VDSC) says Việt Nam may become a new manufacturing hub as US-China trade tensions could shift global manufacturers to Việt Nam from China.
With the signing of the EVFTA, shipments to Việt Nam will increase as foreign companies will have to import machines and equipment to establish their plants in the country.
However, VDSC warns Việt Nam is becoming highly dependent on foreign direct investment (FDI). Therefore, if FDI firms underperform, the logistics sector will also dive.
In addition, a large number of logistics companies haven’t maximised their potential and improved their competitiveness, so they won’t be able to make the best use of the advantages brought by the EVFTA.
Textile and garment
Analysts have said textile and garment companies are going to take advantage of the trade deals between Việt Nam and the European Union as EU tariffs on these products will be curbed to zero per cent by 2026.
But if Vietnamese producers want tax cuts for their exports, they have to meet the EU’s strict requirements on the origin of input materials, according to a report by Bảo Việt Securities Co (BVSC) released in June, 2019.
For textile and garment products, input materials must be locally made in Việt Nam, the EU and markets with free-trade agreements with the two sides – like the Republic of Korea – and the production must be done in Việt Nam or the EU.
Few Vietnamese textile and garment firms meet those requirements as local companies are only capable of production, while input materials must be imported from China and Taiwan – which are not bound by any trade deals with the EU, BVSC reports.
Concerns about the lack of producing raw materials among textile and garment companies caused their shares to underperform or record modest gains on Monday.
Of the 20 textile and garment companies listed on both the Hồ Chí Minh and Hà Nội stock exchanges, only Đức Quân Investment and Development JSC (HoSE: FTM) gained 0.8 per cent on Monday.
The rest of the companies’ stocks either slid or closed flat at the end of the first day of the week. Shares of Everpia JSC (HoSE: EVE) fell 0.7 per cent and Thành Công Textile Garment Investment Trading JSC (HoSE: TCM) lost 2 per cent.
Since June 30, Everpia shares have slid 1.1 per cent while Thành Công shares have gained only 2.2 per cent. — VNS
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