This week, our team attended FundForum Asia in Singapore, which brought together more than 400 senior professionals from asset and wealth management firms across Asia and global markets. At a session on the rise of dividend culture in Asia and emerging markets, Robert Holmes, Partner and Portfolio Manager at North of South Capital (a partner firm of Pacific Asset Management), highlighted two long-term trends that emerging-market investors often overlook.
The first is the narrowing gap between interest rates in emerging and developed markets, which affects how investors value companies in each. The second is the expansion of pension systems in aging emerging economies, which over time creates a large pool of domestic capital invested in local stock markets. We cover these two developments from our own point of view to examine what they mean for Vietnamese equities and our investment portfolio.
Higher Global Yields Weaken One Reason for Valuing Vietnam at a Discount
The first trend concerns the return investors can earn outside Vietnam. A global sell-off in government bonds in August and September pushed developed-market yields to their highest levels in decades. Japan's 10-year yield reached 3%, its highest level since 1996, the US 10-year Treasury yield rose to around 4.8%, and UK and German yields reached their highest levels in more than a decade. Over the same period, Vietnam's 10-year government bond yield increased around 0.4 percentage points year-to-date (YTD) to 4.4% in early September, which leaves it below the equivalent US yield.
Vietnam's bond market absorbed the selloff with limited disruption because domestic institutions hold nearly all of it (Vietnam News). Banks and insurers held 98.7% of local-currency government debt at the end of 2025, which limits the scope for sudden foreign selling and has kept Vietnamese yields broadly stable while developed-market yields moved sharply higher.
Bond yields serve as a benchmark for equity valuations. When government bonds offer higher returns, investors require higher expected returns from stocks, which lowers the price they are willing to pay for a given level of earnings. For much of the past two decades, emerging-market stocks traded at lower price-to-earnings (P/E) ratios than those in the US or Europe, partly because interest rates in emerging markets were considerably higher. Holmes's argument is that as developed-market yields move toward emerging-market levels, this component of the valuation gap shrinks, and any remaining discount has to be explained by company- and market-specific factors such as governance, liquidity, and currency risk.
In our view, the comparison is now direct for Vietnam, since the US government currently pays a higher yield on 10-year debt than the Vietnamese government. Higher local interest rates therefore no longer explain why Vietnamese companies would trade at lower valuations than comparable companies in developed markets. Any remaining discount reflects other factors, including foreign investors' access to the market, corporate governance, and currency risk. Market access is improving following FTSE Russell's reclassification of Vietnam to Secondary Emerging market status on September 21, 2026. Governance and earnings quality vary between companies, which makes company selection more important as the market develops.
An Aging Population Is Building Demand for Long-Term Savings
The second development Holmes described, the expansion of pension systems, is driven largely by population aging – and Vietnam's population is aging at one of the fastest rates in the world. According to United Nations projections cited by the ASEAN+3 Macroeconomic Research Office (AMRO), Vietnam will take 18 years to move from an aging to an aged society, the stage at which people aged 65 and over make up 14% of the population, and is expected to reach it by 2036. The same transition is taking 20 years in Thailand, 22 years in Indonesia, 24 years in Malaysia and Japan, and 30 years in the Philippines (AMRO). In developed Western economies, it took considerably longer, at 69 years in the United States, 89 years in Sweden, and 115 years in France (Vietnam News).
What sets Vietnam apart is the income level at which this happens. The World Bank describes Vietnam as getting old before getting rich, since it is making the transition at an earlier stage of development and a lower income per capita than other countries that went through a similar shift, at around 40% of the global average at the time of its report (World Bank). The same report estimates that aging will lower Vietnam's long-term growth by 0.9 percentage points over 2020–2050 and add 1.4–4.6% of GDP in public spending.
A faster transition at a lower income level gives households less time to build retirement savings, while the state pension system faces rising payouts from a shrinking share of working-age contributors. Most Vietnamese households still hold their savings in bank deposits, gold, and real estate, and the government is now encouraging a shift toward long-term retirement products. The 2024 Social Insurance Law and Decree 85/2026/ND-CP on supplementary pension insurance, which replaced the pilot framework in place since 2016, are the first steps. The decree allows pension funds to invest in listed corporate bonds rated by independent agencies, and the Ministry of Finance has proposed raising the tax-deductible limit for pension contributions from VND 1 million to VND 3 million per month (Vietnam News).
By comparison, Malaysia illustrates the role a mature pension system can play in a domestic stock market. Its national retirement fund, the Employees Provident Fund (EPF), kept nearly 62% of its investment assets in Malaysia at the end of 2025 (Bernama), and equities generated 64% of its investment income for the year (New Straits Times). In its most recent disclosure of market ownership, the EPF held around 12% of the market value of the FTSE Bursa Malaysia Top 100 Index at the end of 2023 and accounted for 23% of trading value in those stocks (Malay Mail). Vietnam does not yet have a domestic institutional investor of comparable size, and its pension reforms are an early step toward building one.
Pension Capital Will Reach Vietnamese Equities Gradually
For now, the pension capital available to buy Vietnamese shares is small relative to the economy. Vietnam's supplementary pension market, which workers join voluntarily in addition to state social insurance, remains at an early stage. At the end of 2025, four licensed managers operated seven supplementary pension funds with net assets of just over VND 2.2 trillion (around USD 84 million) and nearly 28,600 participants. Participation has increased more than 42 times over five years, although workers can currently join only through their employers, which limits uptake (Vietnam News).
The state social insurance fund is considerably larger but invests almost entirely in government debt, and current regulations do not permit it to invest in listed equities. Vietnam Social Security (VSS), which manages the fund, holds around 40% of outstanding government bonds, which account for more than 80% of its investment portfolio (AMRO). The 2024 Social Insurance Law widened the fund's permitted investments to include local government, government-guaranteed, and foreign government bonds, but listed equities remain excluded. The law also allows the government to set a roadmap for further diversifying the fund's investments, which leaves room for its role in the stock market to change over time.
Regarding pension capital, the government has set specific targets to expand retirement savings and channel more of them into the stock market. Decision 1413/QD-TTg targets average annual growth of 11.5% in pension fund assets over 2026–2030, and Decision 3168/QD-BTC encourages pension funds and insurers to invest in the stock market. Starting from around USD 84 million, even rapid growth would leave supplementary pension assets small relative to Vietnam's market capitalization by 2030. We therefore expect domestic pension capital to become a significant equity buyer over the next decade, at a pace set by tax incentives, individual enrollment, and wider investment limits for pension funds.
Kenno's Perspective
As covered in our article on improving the market structure, individual investors account for about 85% of investors in Vietnam's stock market, and many trade on news flow and short-term momentum, so prices can move away from company earnings for extended periods. Institutional investors, particularly pension funds and insurers, invest for obligations that extend over decades, so they typically favor companies with transparent reporting, sound governance, and steady earnings growth. Foreign discretionary investors, who select individual companies instead of tracking an index, screen for the same qualities, and we expect their participation to grow as market access and disclosure standards improve after the FTSE Russell upgrade.
Both themes from the presentation lead to the same conclusion for our portfolio. With developed-market yields now above Vietnam's, one long-standing reason for valuing Vietnamese companies at a discount has weakened, and a larger pension system will add domestic investors whose decisions are based on company fundamentals. By holding strong businesses while short-term trading still drives most price movements, we aim to be invested ahead of two sources of long-term demand: foreign institutions entering now that Vietnam is an emerging market, and domestic pension funds as they grow.
The Kenno Vietnam Fund invests in fundamentally sound Vietnamese companies at attractive valuations. With developed-market yields now above Vietnam's and domestic pension funds at an early stage, we see the current period as an opportunity to invest in well-governed, consistently profitable Vietnamese companies ahead of longer-term institutional demand. If you would like to learn more about the fund or our investment approach, feel free to reach out to us.
