As Vietnam continues to rank among Asia’s top destinations for foreign investment, we are committed to keeping our global audience informed about key developments through the Kenno Vietnam Pulse series.
The VN Index rose 6.3% in USD terms in August, recovering most of July's decline, while the Kenno Vietnam Fund returned 9.2% on the same basis. Unlike the rallies earlier this year in the market, which were driven mainly by banks and Vingroup-related stocks, gains were spread across a much broader range of companies. Buying spread across businesses that had reported strong first-half earnings and had been sold down to low valuations, a pattern we associate with a market correcting an earlier overreaction. Underneath the price move, capital that had left Vietnam's formal financial system began returning to it, and FTSE Russell gave foreign investors a firmer sense of the timing and scale of buying that had been absent for two years. Taking the past two months together, we view July as a decline that overshot the news and August as a partial correction of it, which marks the start of an improvement for the market.
Foreign investors returned as net buyers in the first week of August after selling Vietnamese equities for most of the year, with three consecutive sessions of net purchases on the Ho Chi Minh Stock Exchange totaling VND 2.4 trillion (around USD 93 million) concentrated in large, established companies (The Investor). Domestic buyers moved in the same direction and across a broader selection of names than in this year's earlier rallies, favoring companies that had already published strong first-half results. Capital flows going into businesses with reported earnings behind them tend to persist longer than those chasing price, which is why we treat August as a change in investor behavior instead of simply a rebound.
Sentiment during the month was significantly supported by FTSE Russell’s announcement one month before formally upgrading Vietnam to an emerging market. On August 21, it published a list of 27 Vietnamese stocks for inclusion in its indices, four more than the 23 announced in April, raising Vietnam's weight in the FTSE Emerging All Cap Index to 0.49% from 0.33%. This lifts passive capital entering Vietnam through these indices over the next twelve months to USD 3 billion from USD 2 billion on Vietcap Securities' estimates, against roughly USD 3.6 billion of Vietnamese equities that foreign investors have sold in the first eight months of this year. While this is an imperfect comparison, since the selling is behind us and the buying ahead of us, and foreign investors may keep selling while index capital arrives, putting these numbers side by side does suggest a buyer of comparable size on the other side of the trade for the first time since 2024.
The market infrastructure that Vietnam had to build to earn the FTSE upgrade is worth more than the upgrade itself, and that work continues beyond September, toward longer-term milestones such as the MSCI upgrade. Reclassification by either provider does the same thing for Vietnam, which is to move its companies within the reach and consideration of global institutional investors. This matters more to us than passive capital linked to index inclusion, because allocators who actively choose what to buy place greater weight on business fundamentals and the share prices of individual companies. We set out our view on the impacts of the market upgrade in more detail in a separate article.
On liquidity, the funding shortage behind July's decline has not gone away, but August produced the first evidence that the pressure is easing, in places official economic figures do not capture. In Vietnam, the exchange rate quoted by banks normally sits below the rate on the informal market, because some demand for dollars cannot be met through formal channels. That relationship has reversed, with the informal rate now trading below the bank rate, which can indicate that demand for dollars outside the formal system is easing. Gold shows the same shift on a larger scale, with a domestic premium that reached VND 15 to 20 million per tael at its widest and has now almost closed. The government has spent two years working that premium down by letting banks distribute gold bars, ending the SJC production monopoly, and raising penalties for unlicensed trading, and gold transactions must now be made in the buyer's own name, settled through a bank, invoiced, and taxed on transfer. Vietnamese households reserve gold and dollars to a degree that materially reduces the banking system's available lending, so a reversal in that behavior would loosen the constraint that drove July's selling.
Credit in Vietnam is being aimed at different borrowers than a year ago, favoring areas creating genuine value and growth for the economy, such as infrastructure, manufacturing, and processing. Meanwhile, lending remains controlled for real estate developers. Twelve banks announced around VND 408 trillion (around USD 15.7 billion) of preferential lending programs during August for smaller companies and priority sectors, priced at least 1 percentage point below their average rates, with four state-owned banks accounting for VND 220 trillion of that total (Vietnam News). Funding aimed at productive capacity reaches company earnings before it reaches share prices, which suits an investor holding businesses for years. Two constraints have not yet changed, however, with interest rates still high and margin lending at a level we watch closely after July, when forced selling made the decline of the stock market worse than the news warranted.
In the public sector, Vietnam set new rules in August for how much of each industry the government needs to own, with the purpose of moving state capital toward higher returns. Prime Minister's Decision 40, effective August 5, 2026, sorted industries into three groups by required state ownership, and ministries, agencies, and local governments had to complete their 2026 to 2030 restructuring plans by the end of the month (Vietnam News). Under the decision, the State Capital Investment Corporation (SCIC) will shift from a passive holder of assets to a professional capital manager, which gives minority shareholders an owner judged on the return it earns in companies where a large stake has sat for years without one. Public investment faces a similar test, with VND 425.3 trillion (around USD 16.4 billion) disbursed by July 31, 2026, or 41.9% of the plan assigned by the Prime Minister, ahead of last year in absolute terms and behind the pace the record annual allocation requires (VOV).
Live hog prices, which we track because of the impacts on our portfolio company Masan MEATLife (MML), reached their low for the year in August, and we expect the decline to continue as production shifts from small farms to larger commercial operations that control disease better and supply more steadily. Several years of high prices have also drawn in new capacity that is now reaching the market. China went through the same consolidation after African swine fever, with hog prices there hitting an eight-year low in March 2026 and now sitting 30% to 40% below Vietnamese levels, which gives a reasonable indication of where Vietnamese prices settle once the shift completes. Cheaper hogs cut both ways for MML, lowering input costs for the branded meat business while reducing the value of what the company produces on its own farms. The branded business has grown large enough that the first effect now outweighs the second, which is the shift we own the company for, since a branded consumer business earns steadier profits than a producer of a commodity.
In pharmacy retail, tighter regulation is moving market share toward operators equipped to comply with it, such as Long Chau, run by our portfolio company FPT Retail (FRT). Decree 90/2026, effective May 15, doubled penalties for selling prescription medicines without a prescription and raised them for stocking goods of unclear origin and for lending pharmaceutical practice certificates (Vietnam News), electronic prescriptions have since been rolled out nationally, and health authorities in Ho Chi Minh City have been fining outlets through the summer, including a branch of a national chain. Independent pharmacies, which still account for most outlets in Vietnam, often lack the systems and trained staff these rules require. Second-quarter results showed Long Chau growing its store count 20% year-over-year, while also lifting revenue per store and achieving a record-high net margin. We expect the same trajectory in other Vietnamese retail formats where scale and compliance costs keep smaller operators out.
August follows the reporting season, where we joined broker-organized post-results tours, meeting management across several businesses including some of our holdings. We also reviewed Vietnam's recent listings, including DatVietVAC, the country's largest media and entertainment group. Although we have not developed an investment case here, entertainment sits close to the middle-class consumption we already invest behind, and what interested us was the chance to study a sector the Vietnamese listed market has not previously offered. Still, four companies went public in the first half of 2026, raising more than USD 830 million, against none in the same period of 2025 (VIR). A working IPO market widens the set of businesses we can own and brings companies to market before analysts have covered them, which is where original research has the best chance of finding something mispriced.
Vietnamese companies still trade well below what their earnings support, and August closed only part of that gap. Interest rates remain high and the funding pressure has not been resolved, which is why we are not treating one month of returning liquidity as a turning point. The direction of the flows has changed, with early signs of capital returning from gold and dollars into the banking system, foreign index buying arriving on a published schedule from September, and market infrastructure reform carrying through the next few years. Our portfolio companies grew their earnings through both the July sell-off and the August recovery, and owning businesses that compound earnings regardless of what the index does in a given month is what produces the returns our clients are invested for.
And that wraps up this month’s edition of Kenno Vietnam Pulse. We hope you found these updates helpful in understanding Vietnam’s market and investment landscape. To receive future editions directly in your mailbox, feel free to subscribe to our monthly newsletter. If you would like a closer look at investment opportunities in Vietnam, we invite you to connect with us.