Vietnam’s tourism hit by the recent coronavirus outbreak – roll on 2021

Last month, on July 25, Vietnam’s Ministry of Health reported the first known community transmission of the novel coronavirus in 99 days, ending a remarkable stretch during which life in the country had largely returned to normal, with the major exception of the borders remaining closed.

Since then, Vietnam has gone from 417 COVID-19 cases to 983, while the death toll related to the virus climbed from zero to 25 as of Tuesday, August 18. Some of these new cases have been imported and quarantined upon arrival, but most have been from community transmission, largely in Da Nang and neighbouring Quang Nam Province, home to Hoi An.

However, cases have been detected in at least 13 other locations, all linked to Da Nang, while tens of thousands of people are being tested in Hanoi and Ho Chi Minh City, and nearly 180,000 people are in quarantine nationwide, mostly at home.

While the above case and death figures are low relative to many other countries, they have had a dramatic impact. Da Nang is under a strict lockdown, with its booming tourism industry completely halted. 

Domestic travel elsewhere in the country remains open, but many people have canceled trips. For example, local media reports that from July 26-27, over 20,000 Ho Chi Minh City residents canceled tour bookings with Vietravel, a major tour operator. 

This dealt a huge blow to an industry that was in the midst of fully pivoting to domestic tourism, as international visitors are unlikely to be allowed back into Vietnam until there is a vaccine for the coronavirus. 

While local governments outside of Da Nang have avoided large-scale shutdowns in response to the resurgent virus - Hanoi and Ho Chi Minh City have closed bars, nightclubs, and public parks while mandating mask usage - businesses are still hurting.

Mai Linh, one of the largest taxi companies, has seen revenue fall by 30% while shutting down operations in Da Nang and Hoi An, two hugely popular tourist destinations. Other companies have had to reduce production after workers were quarantined, and shuttered storefronts remain a common sight in central Ho Chi Minh City. 

Vietnam Airlines, the national flag carrier, plans to halve salaries for pilots and flight attendants and is also looking to sell several planes amid projections of US$650 million in losses for the year. The outlook which looked bleak for overseas travel, but encouraging for domestic travel, took a turn for the worst when the recent outbreak happened.

Even before the recent outbreak, expectations on overseas travel were muted.

Small-scale cafes and restaurants are also in the process of figuring out how to prepare for the worst after just starting to recover from the previous outbreak peak. 

It remains to be seen how businesses will adapt to this current outbreak. Initially, there were glimmers of positive news, on the morning of August 10, the Ministry of Health reported no new cases for the first time in 10 days, though further cases have been announced since then. The number of infections is slowly edging towards 1000, and the number of deaths may also increase. Put in the context of the rest of Asia, the way that Vietnam has managed to control the pandemic so far is still remarkable, and consumers remain optimistic.

The country’s relatively quick recovery following the national shutdown of late March and early April shows that demand can rebound fast once people feel confident in public health, so if health officials fully contain this outbreak in the near future, businesses which survive will be able to once again take advantage of domestic spending.

Roll-on 2021

Vietnam Airlines is planning for a return of domestic travel and is planning to issue more than 2 million tickets for the Lunar New Year (Tet) Holiday in February 2021. Next year could also see a return of the foreign tourists who came in vast numbers in 2019, including more than 5.8 million from China.

Vietnam is a country with lots for foreign tourists to enjoy: long stretches of sandy coastline, beautiful Karst topography, huge caves half-hidden in the jungle, mountains, hill-tribes, Instagram-worthy shots of thriving Asian cities, chaotic traffic, Obama-Bourdain ‘Bun Cha’ noodles, and egg-coffee to name a few. The food is fantastic, the beer is cheap, the people friendly and the country has a vibrancy and a pace that is not felt in Europe.

How will Vietnam fare as an investment destination?

Vietnam is also a country of increasing investment opportunity, with the growing domestic consumer base set to attract further interest, and Vietnam is expected to become the largest component of the MSCI Frontier market later this year. COVID-19 may have put a damper on the enthusiasm of domestic and foreign tourists for the time being, but it remains a vibrant and increasingly important market for investors to consider.

The stock-market, and funds such as Vietnam Holding (LSE: VNH), were hit in the first part of the year, but the prospects for further rebounds in the economic recovery has led to increased optimism among investors. Despite the recent outbreaks of COVID-19, the stock market has rallied approximately 7% in the first three weeks of August and Vietnam remains a bright spot in the fog of COVID-19.

The core themes of Vietnam Holding – Industrialisation, Urbanisation, and the Consumer – live on, and many of the leading stocks in the Fund’s portfolio have shown strong resilience. Vietnam Holding differentiates itself from ETFs (exchange-traded funds) and many other funds through its commitment to responsible investing. It has been a signatory of the United Nations' Principles for Responsible Investment (PRI) for over a decade and was recently awarded top scores (A*, A, A) in the annual PRI assessment. As the country continues to show its ability to handle the uncertainties of the coronavirus pandemic, many of its leading companies are also showing that they can be champions in their fields without sacrificing the environment, society, and doing the right things for investors. Environmental and Social Governance (ESG) has become a more important theme globally, and many Vietnamese companies are already trying to adopt these practices as they adapt to the new normal.

As with the tourism industry, the growth prospects for Vietnam’s leading companies in 2021 appears healthy. Many of these will rebound and are expected to see their earnings grow significantly next year. Roll-on 2021!