The pattern we observed over the previous three months continued in June. The VN Index was almost unchanged, but this headline number masked a more mixed market beneath the surface. A small group of large-cap stocks, including VIC (+7.4%), VHM (+3.7%), STB (+10.2%), and TCB (+3.6%), supported the index, while most other stocks traded within a relatively narrow range.
The Kenno Vietnam Fund’s net asset value declined 2.9% in USD and 0.9% in EUR, partly weighed down by less-liquid holdings such as TNH (-13%) and MML (-4%). We had expected some near-term weakness in these names, given their more modest 2026 earnings outlook, but our long-term investment thesis remains unchanged. We continue to view both companies as attractive investments supported by Vietnam’s structural consumption growth and healthcare demand.
More broadly, most of our other holdings saw limited share price movements during the month. In our view, while global tensions have eased, the key domestic factor influencing the market has become liquidity in the banking system. This is the topic we explore in this month’s commentary.
The more interesting point in June, as in the past few months, was not the index level itself but what supported it. Market leadership remained concentrated in companies and banks that are closer to the areas where government priority and access to financing are currently strongest. Vingroup (VIC) was the most visible example, while selected banks such as Techcombank (TCB), LienVietPostBank (LPB), and Sacombank (STB) also performed well. Several of these banks have had increasingly direct or indirect links to the Vingroup ecosystem, which helps explain why they have attracted more investor attention in the current environment. The implication is that liquidity is not spreading evenly across the market. Capital is still moving first toward businesses perceived to be closer to priority projects, stronger policy backing, or easier access to funding.
The external circumstances improved during the last month. Easing geopolitical tensions in the Middle East removed one source of market anxiety, while lower oil prices were clearly helpful to Vietnam, a net energy importer. But this better external environment did not lead to broad-based buying. Instead, the market's attention shifted back to the domestic picture, where liquidity remains the key constraint. In simple terms, there is not enough freely available capital in the financial system, and the capital that is available is not flowing evenly across the economy.
This is visible in the data that we track regularly. The banking system’s loan-to-deposit ratio increased close to a record level of around 120% by the end of the first quarter of 2026 (Q1/2026), meaning banks have lent much more than they currently hold in customer deposits. As a result, they have had to compete more aggressively for deposits to narrow that gap, keeping funding costs elevated. In the equity market, margin debt relative to market capitalization is also at an all-time high, suggesting investors are already using a high level of borrowed money. At the same time, the amount of short-term liquidity injected from the State Bank of Vietnam (SBV) remains high, suggesting that commercial banks still need meaningful support. Moreover, the SBV has limited room to cut rates aggressively while it is still trying to defend the dong. If Vietnamese rates fall while US rates remain relatively high, capital may be more likely to flow back into US-dollar assets, putting further pressure on the currency. As a result, the usual solution – cheaper, more abundant credit – is only partially available.
Recent measures have therefore been targeted rather than broad-based. Two recent measures from the SBV illustrate this approach. First, Circular 25, effective from 1 July, raises the ceiling on the use of short-term funding for medium- and long-term lending from 30% to 40%, bringing it back to the 2020–2021 level. This should ease an important funding bottleneck for capital-intensive sectors such as infrastructure and construction. We estimate it could add roughly 10%, or USD 38-57 billion, to banks’ medium- and long-term lending capacity. Second, the SBV agreed to exclude loans linked to 18 designated infrastructure projects proposed by Vingroup, Sun Group, and Masterise (Techcombank-linked) from banks’ real estate credit growth limits. These projects together require around USD 29 billion in financing. Both measures are best understood as targeted support for projects seen as nationally important, not as a general credit stimulus for the whole economy.
The result is a two-speed market, where index levels and trading value have continued to rise, but gains are still concentrated in a narrow group of companies. Large strategic groups and selected banks appear to be first in line for liquidity and access to funding, while the broader corporate sector has to wait longer for either funding conditions or earnings momentum to improve. This pattern has now persisted for several months: a small number of conglomerates have captured a disproportionate share of capital, attention, and performance.
For the portfolio, our conclusion is unchanged. We are not chasing the most obvious winners of this liquidity cycle, especially where share prices reflect easier access to funding rather than underlying improvements. If sentiment shifts, these names may have limited valuation support. We would rather wait for liquidity to broaden, which should create a more durable opportunity set. While the current environment is challenging in the short term, it does not change our longer-term view. We believe that, as the government continues to push capital-led development, spending should, over time, flow back into the economy through land compensation, material purchases, payrolls, consumption, and property sales.
Furthermore, fiscal resources are improving significantly. The formalization of the economy has helped lift government revenue by around 30% last year, with revenue continuing to grow more than 15% in the first five months of this year. That gives the government more room to support infrastructure and public investment, even if the impact takes time to reach companies and households. There is also a large amount of household wealth held outside the formal financial system, including gold, cryptocurrencies, and other less-regulated channels. If government reforms can gradually bring more of these resources back into the formal economy, the funding constraint should ease. Finally, as deposit rates normalize and property supply structurally improves, some capital that previously chased real estate during the easy-money period may return to the banking system and financial markets. In our view, the market needs time, but the path toward broader liquidity is still there.
While infrastructure projects, construction starts, and a few so-called large domestic conglomerates continue to dominate daily headlines, we should not overlook other developments that matter more directly to our portfolio, even if they may take longer to show up in results. Building on last month’s comments, we highlight three notable developments this month.
First, the government recently approved Decision 982, which sets out a strategy to help Vietnamese digital technology companies expand overseas. By 2030, the government wants at least 5,000 local technology companies to earn revenue from international markets and digital technology exports, reaching at least USD 55 billion. The plan also aims to build a stronger group of national champions, including five companies with overseas revenue above USD 1 billion. This is supported by practical measures such as tax incentives, deductible market-expansion costs, simpler procedures, and stronger promotion of the “Make in Vietnam” brand. We believe that our portfolio company, FPT Corporation (FPT), is one of the clearest candidates to benefit from this policy, given its growing overseas backlog in Japan, the US, and Europe. The earnings impact will not be immediate, but the direction is positive. It supports our long-term view that Vietnam can move beyond low-cost outsourcing and become a more serious exporter of higher-value software, digital transformation, and AI-related services.
Second, on 8 June, the Politburo issued Resolution 10, which marks a shift in Vietnam’s approach to foreign direct investment (FDI). The focus is moving away from attracting as much capital as possible and toward attracting better-quality investment. Vietnam will prioritize high-tech, innovation-led, and greener projects, including semiconductors, AI, electronics, and advanced manufacturing. Investors will also be assessed more closely on technology transfer, R&D, and how well they connect with local suppliers. The targets are also ambitious: USD 200–300 billion of registered FDI by 2030, with about 75% coming from developed economies, a 45–50% localization rate, and around 10,000 local companies joining FDI supply chains. For us, the key point is that higher-quality FDI should bring more stable foreign-currency inflows and support the Vietnamese dong over time. That matters because, as mentioned above, currency pressure is one reason the State Bank has limited room to ease policy. If the balance of payments becomes more stable, liquidity conditions should gradually improve as well.
Third, the Ministry of Industry and Trade has made product traceability mandatory for high-risk goods under its supervision. From 1 July 2026, businesses must register and verify product information on a new national platform called VeriGoods, with full compliance required from 1 January 2027 before goods can enter the market. The initial scope is still narrow, mainly covering industrial items such as chemicals and precursors, so the direct impact is limited for now. But the direction is important, reaffirming that Vietnam is moving toward a more formal, transparent, and origin-based economy, alongside tighter tax enforcement and stricter product standards. This should make life harder for informal and non-compliant operators, while shifting demand toward modern, well-run, branded companies. Phu Nhuan Jewelry (PNJ) is a good example in our portfolio. As traceability, tax, and origin rules tighten in retail, smaller gold shops will face higher compliance costs, while PNJ’s scale and transparency should help it gain share. More broadly, a credible traceability system also helps Vietnamese exporters prove where their products come from, which matters more as trading partners, especially the US, pay closer attention to origin.
In June, the Investment team attended the four-day HSC Emerging Market 2026 event in Ho Chi Minh City. One of the clearest messages from the conference was that Vietnam’s investment story is no longer just about a broad recovery; it is becoming more selective, and company execution now matters more. Our overall takeaway is constructive, but selective. Vietnam still has several market catalysts, including earnings recovery, progress on a market upgrade, public investment, and continued economic reform momentum. However, the best risk-adjusted returns are likely to come from quality cyclical names and structural winners. Infrastructure remains at the center of this cycle, though financing and implementation are still the main bottlenecks. Other structural themes also stood out. Retail formalization should continue to favor modern and compliant operators, while in technology, AI is moving from experimentation to practical business use.
We also met with several portfolio companies during the conference. One of the most interesting updates came from Masan Group (MSN), which is changing how it does R&D for its core consumer goods business. Instead of doing everything in-house as it did in the past, the company has set up an R&D hub in China, the world’s largest consumer market. This should allow Masan to test product formulas faster before mass production and improve the success rate of new product launches. We think this is the right strategic move because it can shorten the learning curve and give the group better visibility on future sales. We expect both MSN as a whole and Masan MEATLife (MML), its branded chilled meat business, to benefit from this direction.
Another useful insight came from our meeting with Mobile World Group (MWG), especially its grocery and FMCG retail arm, Bach Hoa Xanh (BHX). BHX is expanding rapidly, adding more than 490 stores in the first five months of 2026 (5M/2026) after opening nearly 800 stores last year. Understandably, the market is concerned that new store openings could weigh on profitability. The actual numbers, however, tell a different story. In Q1/2026, BHX delivered a net margin of more than 4%, compared with just 0.2% in Q1/2025. New stores now take only one to two months to break even at the store level and around three to four months at the company level, helped by lower capex, stronger brand recognition, more relevant, technology-supported product offerings, and a shorter cash conversion cycle thanks to scale. We believe these improvements in store economics should translate into stronger profitability and a better valuation for the whole chain over time.
Finally, following our earlier engagement with another NLG shareholder to support the appointment of a new board member, we continued the discussion to share updates and provide further feedback. We learned that the key priority of the board now is to better align management incentives with business performance, so the company can gradually improve shareholder returns, and to strengthen its core capability in integrated township development. This requires more than building homes; it also requires expertise in commercial property, attractive landscaping, and creating a stable residential community, all of which are key strengths of the new board member. We raised our concern that NLG has been slow to monetize its sizable and well-located landbank, which has contributed to a decline in return on equity to only around 6–7%. We also made clear that we would like to see the company take a more proactive approach to sales in the coming time.
Below, we highlight investment cases that illustrate our portfolio management activities during the month.
FPT’s share price remains under pressure, mainly because foreign investors have continued to sell the stock, and global IT services names have also been weak. Accenture, Infosys, and Tata Consultancy Services all traded down significantly during the period, so FPT has not been moving in isolation. That said, the recent decline looks less worrying than earlier in the year. The company’s operating results remain healthy, backlog growth is improving, and the valuation has become hard to ignore. This supports our view that the share-price weakness is driven more by fund flows and sector sentiment than by any meaningful deterioration in FPT’s fundamentals.
In 5M/2026, FPT delivered 11% revenue growth and 16.2% net profit growth, supported by the core IT services business as well as its telecom and retail-related joint ventures. The result is particularly encouraging because it came despite a one-off increase in corporate income tax after one software campus reached the end of its tax incentive period. More importantly, FPT’s global backlog rose 31% year-over-year (YoY) in 5M/2026, accelerating from 22% in Q1/2026. Japan remains a strong market, while the company is also winning more large contracts above USD 10 million in Europe and the US. In our view, this is a practical sign that FPT is competing well and, in some areas, gaining share, even as clients rethink IT spending in the AI era.
FPT’s recent investor conference also helped clarify how management views AI's impact on the IT services industry. The key message was straightforward: AI is expected to expand the opportunity for capable service providers, not replace them. As AI reduces the cost of basic coding, clients are likely to reinvest the savings in larger, more complex projects, such as system modernization, AI governance, data architecture, and changes to operating models. FPT is therefore trying to move from being seen mainly as an outsourcing provider to becoming a long-term partner for AI-led transformation. Management also argued that the biggest barrier to AI adoption is not the technology itself, but whether companies can redesign processes, manage data securely, and govern AI use properly. That creates demand for trusted system integrators. Early deal momentum supports this view, including a record USD 30 million legacy-migration contract in Japan, a major vendor-consolidation program in Europe for a German chemical company under strict “sovereign AI” requirements, and a US energy client that increased orders from USD 11 million to USD 23 million, with potential to reach USD 50 million next year.
Overall, we acknowledge the short-term pressure on the share price, but we do not see it as a reason to change our investment view. The earnings base remains strong, backlog visibility is improving, and FPT appears well-positioned for the next phase of IT services demand. We therefore keep our forecast for around 17% compound annual earnings growth (CAGR) over the next three years.
PNJ’s share price has also been under pressure in recent times, mainly due to its higher exposure to gold prices. The company built up a large inventory of raw gold late last year, while global gold prices have recently corrected by more than 20% from their peak. This correction was partly driven by expectations that the Fed would keep interest rates higher for longer, which strengthened the US dollar and other US dollar-denominated assets. We had anticipated the risk of PNJ’s higher gold-price exposure and reduced part of our position earlier this year, which helped limit the impact from the recent share-price decline.
That said, we now see PNJ’s valuation as more attractive, and the risk-reward balance at the current share price looks more reasonable. If we look beyond the short-term gold-price impact, PNJ remains a high-quality business. Its strengths are proven and sustainable, underpinned by strong craftsmanship, large-scale production capability, and one of the widest jewelry retail networks in Vietnam. Since late last year, when the domestic supply of raw gold remained tight, PNJ has introduced a new policy to buy back gold jewelry directly from individual customers at market prices. This policy works because PNJ has advanced refining technology, which helps reduce gold loss during recycling, and more than 430 stores that give it broad access to customers across the country.
This flexibility has helped PNJ continue to perform well despite a difficult operating environment. Thanks to sizable gold inventory accumulated at good costs, and a well-customized product portfolio, PNJ achieved a record result during the high season in the first quarter, with net profit growing 116% YoY. And we expect earnings to grow 30–40% for full-year 2026, even against a high base in 2025. At the current price, PNJ trades at around 9 times 2026 earnings, close to its lowest level in history. The new gold-buying policy is also helping PNJ reach customers who previously bought jewelry from other brands. In that sense, the company is not only protecting its supply of raw materials but also using the current market disruption to gain share.
On a broader picture, as we mentioned above, PNJ is benefiting from a shift toward a more transparent and regulated jewelry market in Vietnam. Tax enforcement and product-origin requirements have become stricter, putting pressure on many smaller private gold shops. Some have struggled or closed over the past year, and even a well-known large gold business in northern Vietnam was recently investigated for serious tax violations. For PNJ, this creates a stronger long-term opportunity. As customers and regulators place greater value on transparency, trusted, well-run companies like PNJ should be better positioned to gain market share.
External pressure has eased somewhat this time, but several domestic constraints are still weighing on the market in the near term. Our view is that these constraints should gradually ease, although the timing is difficult to call. That is why we continue to see a meaningful gap between current share prices and the long-term value of the companies we own. Lower oil prices have also helped reduce inflation risk, which gives us more comfort on the earnings outlook for the portfolio. We are not trying to predict the exact turning point in the market. Instead, we are staying focused on companies with strong competitive positions, clear exposure to Vietnam’s structural growth, and valuations that we believe already reflect a lot of the short-term uncertainty.