Vietnam’s rapid economic growth since the Doi Moi reforms of 1986 has transformed the nation from a low-income economy to one on the brink of upper middle-income status. These reforms not only spurred GDP growth by more than tenfold since 2000 but also reduced the poverty rate from over 37% to less than 4%. Today, Vietnam is setting its sights even higher, aiming to join the ranks of high-income nations by 2045.

To reach this ambitious goal, Vietnam is embarking on what can be described as Doi Moi 2.0 – a bold wave of reforms centered on enhancing government efficiency and an unprecedented infrastructure transformation. Each day, headlines are filled with announcements, speeches, and tangible progress updates, underscoring the government’s unwavering commitment to modernization. What truly stands out, however, is the shift from words to action, with real, measurable changes already in motion. These transformative efforts are poised to deliver far-reaching impacts, including a brighter outlook for Vietnam’s stock market in the years to come.

Streamlining Government for Growth: “It cannot be delayed any longer”- General Secretary To Lam

At the core of Vietnam’s transformation is an ambitious “anti-waste” campaign targeting inefficiencies in government spending. Over 70% of the state budget currently goes to recurring expenses such as salaries and operational costs—significantly higher than the 40-50% seen in developed economies. To address this, the government is planning for aggressive cost-cutting measures, including merging five ministries, closing ineffective departments, and encouraging early retirements among senior officials.

Proposed mergers include the Ministry of Planning and Investment with the Ministry of Finance and the Ministry of Transport with the Ministry of Construction. These measures aim to reduce 15-20% of government units, while surplus personnel will either be relocated to new roles within the streamlined entities or supported by provincial authorities during their job transitions. While the restructuring may incur one-off expenses, such as severance and relocation costs, it is expected to ease long-term spending pressures significantly. Final proposals and approvals are expected in February 2025.

Infrastructure as an Economic Game-Changer

The government’s streamlining efforts is a critical step forming a solid foundation to tackle one of Vietnam’s most pressing challenges: high logistics costs, which currently account for 18% of GDP. This issue is being addressed through the country’s most ambitious infrastructure drive in decades to stimulate economic growth.

The $67 billion North-South High-Speed Railway, which recently received investment policy approval from the National Assembly, is set to begin construction in2027. Once completed, it is expected to reduce travel time between Hanoi and Ho Chi Minh City by rail from 37 to just 5 hours and contribute approximately 1% to annual GDP growth throughout its development phase.

Meanwhile, Long Thanh International Airport, a $16 billion initiative poised to become Southeast Asia’s premier aviation hub, is receiving unprecedented attention. The Prime Minister has visited the site three times this year – two of those visits in just the last three months – emphasizing its priority status. Operations are being fast-tracked for early 2026, with supporting infrastructure upgrades in surrounding areas also underway to enhance connectivity.

In addition, Ho Chi Minh City’s first metro line is set to open on December 22, marking a significant milestone in the city’s urban transit development. Meanwhile, land clearance for the second line is being fast-tracked, with operations projected to begin by 2030. Over the next decade, both Hanoi and Ho Chi Minh City have set bold targets to expand their metro networks to 418 kilometers and 355 kilometers, respectively. These ambitious projects come with a staggering investment of $37billion for Hanoi and $40 billion for Ho Chi Minh City, signaling a transformative push toward modernized urban transportation.

Mirroring China’s Infrastructure Spending Model

These initiatives echo the infrastructure-driven growth models of countries like China during the early 2000s, a period that saw GDP per capita grow at a compound annual growth rate (CAGR) of 16.8%. With the advantages of low public debt (37% of GDP in 2023) and ongoing streamlining of government operations, we believe Vietnam is positioning itself as Asia’s next breakout economy, with GDP per capita is projected to grow annually by double-digit in the next decade.

Can Vietnam Escape the Middle-Income Trap?

While it may be too early to answer definitively, the fact remains that few countries in Asia have successfully transitioned from middle to high-income status. Notable examples include Japan, South Korea, and Singapore, which achieved this transformation over 20-25 years. Examining their paths reveals key factors, such as robust human capital investment and a strong focus on technology and innovation—areas where Vietnam’s government is showing increasing commitment.

Human capital investment: Vietnam has consistently allocated approximately 15% of its government budget to education, a stable commitment that underscores its focus on building a skilled workforce. With the introduction of cost-saving measures, this proportion is expected to grow in the coming years, further strengthening the country’s emphasis on human capital development. In fact, compensation for teachers has been increasing in the last few years, and in a recent public speech, To Lam stressed the budget proportion for education should be at least 20%.

Adoption of technology & innovation: Vietnam has firmly established itself as a critical player in the global technology value chain, bolstered by substantial investments from tech giants like Samsung and Apple. The country accounts for nearly 50% of Samsung’s global smartphone production, making it a cornerstone of the company’s supply chain, while Apple has steadily shifted parts of its production to Vietnam, including AirPods and other key devices. Building on this momentum, Vietnam is now focusing on next-generation technologies, exemplified by a recent agreement with NVIDIA to develop AI research and data centers. This partnership underscores Vietnam’s ambition to advance its capabilities in artificial intelligence and semiconductors, cementing its role as an emerging hub for innovation in Southeast Asia.

The Stars Have Aligned for Vietnam Stock Market

Vietnam’s stock market has been disconnected from the broader economy in recent years, largely due to the dominance of retail investors and slow market infrastructure development. These issues are now being partially addressed as the government actively pursues an upgrade to FTSE Emerging Market status by September 2025, which could attract over $5 billion in foreign capital. Efforts to streamline operations, reduce bureaucracy, and strengthen the legal framework are accelerating progress. Authorities have also expedited the approval of capital-raising plans for listed companies, opening new opportunities for foreign investors and paving the way for a more dynamic market.

With the promising economic growth outlook, we expect it to be reflected in market performance, driving up valuations. Corporate earnings of Vietnam’s listed companies are projected to grow by 18.6% in 2025, while the VN-Index’s forecasted P/E ratio of 10.0x highlights its attractive valuation compared to Thailand (14.7x) and Malaysia (13.8x). Key sectors such as construction materials, industrials, healthcare, and industrial parks are particularly well-positioned, benefiting from infrastructure upgrades, rising consumer income and strong foreign direct investment inflows. This alignment of favorable conditions presents a compelling opportunity for investors to engage with Vietnam’s evolving market landscape.

TIM