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.
On September 21, Vietnam formally became an emerging market in FTSE Russell's indices, seven years after it was first placed on the provider's watchlist. The milestone arrived in a weaker month for share prices, with the VN Index down 3.2% in USD terms as oil climbed back above USD 100 a barrel and the US Federal Reserve raised interest rates for the first time since 2023. In Vietnam, the government moved forward with new rules for clearing trades, selling medicines online, and pricing land, each of which raises the standards companies and market participants must meet. In our view, September's stock market decline came from global interest rates, while reforms that open Vietnam to more foreign investors stayed on schedule.
The VN Index followed global interest rates through September, losing 2% in the first week as oil prices and US bond yields rose, then recovering part of that ground as investors positioned for the FTSE Russell inclusion. Index funds bought Vietnamese shares at the close on September 18, the last trading day before the reclassification took effect. Foreign investors had been net buyers in the days leading up to it, then turned to net sellers once the rebalancing was complete, as traders who had bought in anticipation of index demand sold to lock in gains. With the inclusion date bringing only a brief round of foreign buying, lasting demand from international investors will depend on the larger index steps still ahead.
This first phase adds only 10% of Vietnam's full index weight, with the remaining 90% added in three phases through September 2027. Vanguard, one of the world's largest index fund managers, has announced its plan to invest around USD 2.5 billion in Vietnam over the next few years (Reuters via DealStreetAsia), close to the USD 3 billion we cited last month for all FTSE-tracking funds together. As discussed in our article from the Vietnam Fund Awards 2026, we see the reforms that come with the upgrade as the larger long-term change for Vietnam's market.
With the FTSE upgrade in place, the next step for foreign investors is central counterparty (CCP) clearing, which begins testing in October ahead of its Q1/2027 launch. A clearing house will sit between buyers and sellers and reduce settlement risk, allowing overseas funds to place orders with a deposit instead of paying the full amount upfront and reducing the cash they hold idle. Lower trading costs make it easier for active fundamental investors, who choose companies based on their results, to invest in Vietnam, and we expect their buying to favor well-run, profitable businesses of the kind we hold in our portfolio.
Higher US interest rates and oil prices added pressure on Vietnam from abroad in the month. On September 16, the US Federal Reserve (Fed) raised its the target range for the federal funds rate 0.25 percentage points to 3.75–4.00%, which limits how far Vietnam can lower its own rates without weakening its currency. Energy costs, part of the US inflation behind that decision, also reach Vietnam directly, with Brent crude back above USD 100 a barrel as negotiations on reopening the Strait of Hormuz stalled. Higher oil prices added to Vietnam's import bill, while strong demand for machinery and other production inputs contributed to a swing from a USD 14 billion trade surplus in the first eight months of 2025 to a deficit of around USD 20.5 billion this year (VietNamNet), adding pressure on the Vietnamese dong.
Foreign capital has helped offset that pressure, while stronger deposits have eased funding at home. Disbursed foreign direct investment reached USD 17.25 billion in the first eight months, up 12% year-over-year, and Vietnamese banks have signed or are arranging around USD 3.4 billion of longer-term international loans this year, led by VPBank, HDBank, and Techcombank (Vietnam News). Deposits were growing faster than lending by late August, reversing the pattern of the first half of 2026 (Vietnam News). Together with the longer-term loans from abroad, this eases some of the funding pressure on banks, which in July forced investors using borrowed money to sell. With steadier funding, we expect share prices to follow company earnings more closely, even while global rates stay high.
Higher fuel costs have also pushed up consumer prices, with transport accounting for most of the recent increase. Even so, inflation has stayed within the government's target so far, averaging 4.45% over the first eight months against a full-year target of around 4.5%. Core inflation, which leaves out food and fuel, was lower at 4.24% (VietNamNet), a sign that higher energy costs have not yet spread to other prices. With the Fed still raising rates, we expect Vietnamese interest rates to stay at current levels in the coming months. For equities, the same rise in US rates has an upside, as discussed in our recent note from FundForum Asia, since developed-market bond yields now sit above Vietnam's and weaken one long-standing reason for valuing Vietnamese companies below their global peers.
In draft amendments to the Law on Pharmacy published on September 22, the Ministry of Health proposed banning medicine sales through livestreams and requiring every online seller and transaction to be traceable, moving more health purchases to licensed pharmacies. In Vietnam's e-commerce-driven consumer market, livestream shopping on platforms such as TikTok, Facebook, and Shopee has become mainstream because hosts reach large audiences cheaply with time-limited discounts, but that speed makes sellers and products hard to trace. The proposal follows a nationwide campaign since May against counterfeit supplements and health foods, which has removed more than 14,000 online shops. This benefits established companies in our portfolio, such as the pharmacy chain Long Chau, run by FPT Retail (FRT), and the drug manufacturer Traphaco (TRA), extending the shift that followed the stricter penalties discussed in our earlier note on Decree 90/2026.
Vietnam is also rewriting certain real estate rules to make land prices more predictable and speculation more costly, at a time when developers face high mortgage rates and slower growth in home loans. The National Assembly is due to consider a revised Land Law in October, following Resolution 21, issued on July 28, which calls for land prices based on market transaction data, alongside related changes to the Housing Law and the Law on Real Estate Business. Clearer land pricing and approval rules would favor developers that build homes for people to live in, such as our portfolio company Nam Long Investment Corporation (NLG), continuing the shift toward end-user demand we described in our article on Vietnam real estate earlier this year.
In electronics retail, higher-income Vietnamese households are still paying more for high-end products, even with inflation near 4.5% and share prices falling. Retailers took around 300,000 orders for the iPhone 18 Pro and Pro Max ahead of their September 18 release, priced from around USD 1,500, and most buyers at major retailers chose the costlier Pro Max. The Gioi Di Dong, the electronics chain of our portfolio company Mobile World Corporation (MWG), collected more than 180,000 paid deposits, about 60% of the total (VietNamNet). Vietnamese consumers are increasingly choosing to buy such products from organized retailers that can guarantee supply and offer financing, a shift that brings more of the country's discretionary spending into the formal retail market.
During the month of the FTSE upgrade, we met with the regulators, companies, and investors involved in the next stage of Vietnam's market development. The day after the reclassification took effect, our Hanoi team attended the Vietnam Fund Awards 2026, where the State Securities Commission, fund managers, brokers, and custodian banks discussed how Vietnam can attract long-term capital. In Singapore, we joined FundForum Asia, where a session on global yields and pension reform became the basis of our latest note. Our investment team also held private meetings with management at portfolio companies in Vietnam, including Traphaco. These on-the-ground conversations provide us with local information before it is widely reflected in international coverage, helping us assess how new rules and foreign capital are likely to affect our holdings.
September's market decline was mainly driven by external pressures rather than any change in Vietnam's fundamentals. Share prices have lagged behind earnings for most of this year, leaving Vietnamese stocks cheaper just as the market becomes easier for global investors to access. Excluding the Vingroup companies, whose large index weight and high valuations distort the market average, Vietnamese stocks now trade at close to 10 times earnings, near their lowest valuation in more than ten years. With most of the foreign buying from the upgrade still to come, we see this as an attractive entry point for long-term investors. The Kenno Vietnam Fund is positioned to benefit, holding the well-run, profitable companies we expect both global capital and Vietnam's reforms to favor.
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.