In October, the Kenno Vietnam Fund’s net asset value fell 0.9% in USD and rose 0.8% in EUR, while the VN-Index fell around 1.5%. One better month does not make up for a difficult year, and we do not present it that way, but it shows the portfolio responding as we expected once company-specific problems were dealt with, as we discussed last month.
TNH Hospital Group (TNH), Masan Group (MSN), and Mobile World Group (MWG) contributed most to our relative performance this month. TNH recovered strongly once the share sale we described last month was completed. The main drag was FPT Corporation (FPT), which fell 16%.
We made two decisions during the month. We completed our exit from Phu Nhuan Jewelry JSC (PNJ) in early October, and we reduced FPT, partly because its Japanese business is slowing earlier than we expected and partly to hold cash for better opportunities. We explain both below.
The wider picture is the one we have described since the summer, and the evidence is now firmer. The pressure early in the month came from abroad, as US bond yields reached their highest level since 2002. At home, the Government responded forcefully, pushing banks to cut lending rates, cutting electricity prices, and considering lower fuel taxes to hold down inflation.
The economy grew 9.95% in Q3/2026, its fastest quarter in four years, though the gains are uneven and have come with a shortage of funding. That shortage is now easing in hard data, not just early signals. Unrecorded money flows, which took around USD 28 billion a year out of Vietnam in 2022 – 2024, turned into an inflow of USD 9.3 billion in Q2/2026, and bank lending is moving back in line with deposits. With the market outside the Vingroup companies trading at around 10 times earnings, its cheapest in more than ten years, we believe the conditions for better returns are building.
Market Overview
Prolonged External Pressure; the Government Is Pushing Borrowing Costs Down
The VN-Index ended October down around 1.5%, and the month came in two halves. In the first, the pressure from September intensified. The yield on 10-year US government bonds reached its highest level since 2002, after the US posted stronger-than-expected inflation figures and the fastest increase in producer prices since 2022, mostly because of energy costs. Higher US yields pull money toward the dollar and away from other markets, both emerging and developed. In the second half, the pressure eased, with the US 10-year yield falling back to around 5.0%, and the Vietnamese Government moved decisively to lower borrowing costs at home. The index recovered a good part of its earlier losses from its low, finishing the month around 1.5% lower.
The policy response to rising borrowing costs came quickly and with unusual force. Following the Party Central Committee’s Conclusion No. 106 on 15 October, the Government asked banks to cut lending rates 1.5 – 2 percentage points for production, business, and priority sectors. The State Bank of Vietnam (SBV) formalized this three days later, requiring banks to cut deposit rates for terms of six months or longer by at least 0.5 percentage points, banning price competition for deposits, and warning that banks that do not comply could receive lower credit growth quotas. This followed a year of rising rates: 12-month deposit rates at private banks had risen more than 2 percentage points to 8 – 10%, and average lending rates at several banks stood at 11 – 13% at the end of September. More than 20 banks cut deposit rates within days, and many announced lower lending rates or preferential credit packages.
In our view, this round is driven by instruction rather than market conditions, and that affects how far it reaches. A similar request earlier this year produced quick cuts, with nearly 20 banks also lowering deposit rates in April, but rates later rose again as banks competed for funding. The difference this time is the penalty on credit quotas, which gives banks a direct reason to comply. There is also an early sign of the limits: lending rates had not yet fallen significantly, with many banks relying on preferential loan packages targeting a specific customer group rather than broad cuts. If lending rates must fall 1.5 – 2 points while deposit rates fall only 0.5, bank margins narrow, and banks may respond by becoming stricter about whom they lend to rather than cutting rates for everyone.
We still think the policy is sensible. Banks have been the most profitable sector in Vietnam for over a decade, with earnings growing at double-digit rates and returns on equity above 20%. At a time when the economy needs to grow quickly and is short of capital, it is reasonable for banks to give up part of that profit to borrowers, and we expect bank returns on equity to settle toward 10 – 15% over time, as seen in other developing markets. This matters for us in two ways. Banks make up around 26% of the VN-Index and a larger share of its earnings, so slower bank profit growth means slower earnings growth for the index as a whole, and we hold no banks at the moment. And the profit banks give up flows to borrowers, including the consumer and retail companies we own, and their customers.
Money Is Still Flowing Back to the Banks
The rate cuts raise an important question. For several months we have argued that liquidity is improving because high deposit rates drew money back into the banking system from gold, property, crypto, and informal channels. Lower deposit rates could slow that.
We think the flow continues, for three reasons. First, savers are still well paid. With inflation at 5.1% and 12-month deposit rates at 8 – 10%, a saver earns around 3 – 5% after inflation, and a cut of half a point leaves that clearly positive. Second, the alternatives are harder to use than before. As we described in August, gold trading now requires transactions in the buyer’s own name, settled through a bank, invoiced, and taxed, and informal transfers through crypto are under much tighter control. Third, the data so far support it.
Net errors and omissions (NEO) in the balance of payments, the measure we said in August would confirm whether money was returning, turned positive in Q2/2026 at USD 9.3 billion, against outflows that averaged around USD 28 billion a year in 2022 – 2024, according to the International Monetary Fund. The banking system’s loan-to-deposit ratio has kept falling, from around 118% in mid-year to 114% at the end of August and an estimated 112% at the end of October, and the SBV reports that the gap between loans and deposits has narrowed from nearly VND 2 quadrillion to below VND 1.5 quadrillion.
The test from here is deposit growth over the next two months, once the cuts have taken effect. If deposits keep growing at least as fast as lending, the funding repair is intact. If they stall, the cuts will have come too early, and we will say so.
Money flowing back into banks and other formal channels, from gold, property, crypto, and informal transfers, also explains why the SBV can cut rates now without weakening the currency. In September, we wrote that cutting rates while the US Federal Reserve was raising them would put pressure on the dong. That risk has not gone away, and US yields were higher in October than in September. What has changed is the supply of dollars at home, with money returning through formal channels and foreign direct investment, which reached over USD 21 billion in the first nine months, the highest nine-month level in five years. The dong continued to appreciate roughly 0.5% against the dollar in October. As long as these flows continue, the SBV has more room to lower rates than the gap with US rates alone would suggest.
Economic Growth Hits a Multi-Year High, but Its Uneven Gains Matter Most to Us
Inflation reached 5.1% in September, above the 4.5% target for the year and up from an average of 4.5% over the first eight months. Higher inflation limits how far interest rates can fall and squeezes household budgets, so the Government is using fiscal tools alongside the rate cuts.
On 27 October, the Deputy Prime Minister instructed Vietnam Electricity (EVN) to lower the average retail electricity tariff from 1 November 2026 to 31 March 2027, and asked the Ministry of Finance to assess cutting the special consumption tax on petrol from 7 – 10% to zero over the same period. We view this as an immediate measure to protect the inflation target, while modestly supporting household purchasing power and business margins. Like the rate cuts, they are temporary responses to external pressure, but they point in the right direction for consumers.
As noted earlier, the economy grew 9.95% in Q3/2026, its fastest quarter since Q3/2022, bringing growth for the first nine months to 9.0%. The acceleration came mainly from strong investment activity and growing consumer spending. Retail sales maintained their strong growth momentum, rising 13.4% in the first nine months, though growth was 7.8% after adjusting for higher prices.
That distinction matters for our portfolio, and it works in our favor. Our consumer and retail companies are growing faster than consumption itself, because they are taking share from informal competitors and passing on higher costs. Mobile World Group (MWG), Masan Consumer (MCH), and FPT Retail (FRT) posted revenue growth of 30%, 15%, and 33%, respectively, for 9M/2026, compared with the consumption growth of 13.4% as mentioned, and many have widened margins as selling prices outgrow input costs. That said, their share prices have not followed, as we have been discussing for months. Excluding the Vingroup companies, the market now still trades at around 10.3 times earnings and 1.6 times book value, its lowest level in more than ten years on both measures.
Public investment is accelerating toward year-end. Disbursement increased 46% in 9M/2026, compared with 33% after H1/2026. From October, ministries and provinces are formally scored on disbursement, and authorities are resolving land disputes and prioritizing the supply of construction materials for projects that are ready. Part of the pressure comes from the growth target, as reaching 10% for the full year would require Q4 growth above 12%, which is why we expect policy to stay supportive through year-end to accelerate the disbursement.
Public investment supports our portfolio indirectly, through jobs and incomes, and it is also creating new opportunities. We have several companies on our watchlist, but many of the obvious beneficiaries already reflect this program in their prices, which is why we are waiting for better entry points even though the market as a whole is cheap.
Last but not least, strong economic headline growth hides a more uneven picture on the ground. Reform is moving quickly, and not everyone benefits. Household businesses are adjusting to the end of lump-sum taxation, informal traders have been hit by the crackdown on counterfeit goods, and higher inflation is starting to weigh on spending among lower-income households. The other side of the same change is that customers are moving to formal retailers, established consumer brands, and pharmacy chains that can show where their products come from. That shift is why our consumer companies are outgrowing consumption, and it is the change our portfolio is built around.
Portfolio Updates
We completed our exit from PNJ in early October, after the governance problems we described last month broke our investment case. We also reduced FPT Corporation because the slowdown in its Japanese business has come earlier than we expected, as we explain in more detail below. Together, these sales temporarily raised our cash, which we will utilize deliberately to either add to existing holdings where prices fall further or build positions in watchlist companies once they reach our entry price.
The Investment Team spent a few days in Ho Chi Minh City meeting portfolio companies and potential investments, and the main findings are in the updates below.
We met with Nam Long Investment (NLG) to update on recent inspection results related to the company, as well as the property market developments. Overall, high interest rates and tight liquidity have slowed property sales across the market, but NLG itself has continued to sell steadily because it builds affordable homes in good locations for people buying to live in rather than to speculate. Mortgage rates of around 9 – 11% – an increase of 3 – 4 percentage points compared with one year ago – have kept many buyers waiting, and the rate cuts are expected to help sales pick up toward year-end.
In terms of the inspection, the Government Inspectorate’s recent conclusion on five NLG projects found mainly procedural lapses: signing sales contracts before project information was published, starting sales before infrastructure was finished, and delays in handing over maintenance funds. The financial impact is small. NLG and its subsidiary have paid around VND 1.6 billion in additional land-use fees and VND 357 million in maintenance funds, with a further land-use fee in Dong Nai due once the official notice arrives, and the company has committed to completing all remaining recommendations by 31 December 2026. We see this as an administrative matter that has not disrupted operations, and we expect limited impact on the share price.
In the meantime, most of our time with MSN went on an important question: its obligations to private equity investors. Over the years, MSN has completed many transactions involving its subsidiaries, including agreements with private equity funds that give those investors the right to sell their stakes back to the group, either with or without guaranteed returns. These obligations do not appear as debt in MSN’s financial statements, so the group’s true leverage is higher than the 2.5 times net debt to operating profit (EBITDA) we cited last month. We estimate the remaining obligations at around USD 750 million, which would take leverage to roughly 2.9 times if counted as debt.
These obligations have long been a reason MSN trades below the value of its businesses, and they are now being addressed. Over the past two years, we estimate that MSN has settled around USD 840 million of these agreements, and management expects the rest to be resolved by 2028, funded by cash from the core businesses, dividends from Masan High-Tech Materials (MHT), and the planned IPO of its core retail business, WinCommerce.
All of MSN’s core businesses now generate cash and fund their own growth. WinCommerce grew revenue 26% in the first nine months, with net margin up 1 percentage point year-on-year (YoY) to 1.9%, and the tungsten upcycle at MHT has added cash to the group. We would become concerned if settlement slipped or new obligations of this kind were created, and we will track progress each quarter. As the obligations clear, we expect the discount to narrow, which is a large part of the return we expect from this investment. Our 2026 earnings growth forecast has been modestly raised to 153%.
We also met Dien May Xanh (DMX), the mobile phones and electronics chain owned around 86% by Mobile World Group (MWG), to discuss its 2027 outlook. DMX had an exceptional 2026 around its listing, helped by a phone replacement cycle, a wealth effect from rising asset prices, and higher memory chip prices that lifted selling prices. We expect these tailwinds to fade for DMX in 2027. Because DMX still produces up to 80% of MWG’s profit, this will slow MWG’s overall earnings growth to around 15% next year, from the 73% we forecast for this year. However, we continue to like MWG because of Bach Hoa Xanh (BHX), its grocery chain. On our numbers, BHX rises from 16% of group profit this year to 25% in 2027, and over 30% in 2028, offsetting most of the slowdown at DMX. We will provide more detail on MWG and BHX later.
As a final note on this section, we are widening our search for new investments. Our strategy has not changed: we invest in high-quality businesses that benefit from Vietnam’s domestic growth, and consumer and retail companies remain the core of the portfolio. However, the beneficiaries of rising incomes, formalization, and public investment now extend beyond traditional consumer names. We will consider only companies with the same qualities as our core holdings, namely strong market positions, sound governance, and attractive valuations, and only where they improve the portfolio’s balance of risk and return.
Below, we highlight investment cases that illustrate our portfolio management activities during the month.
Mobile World Group (MWG): Consumer Discretionary and Consumer Staples | 18.9% weight | +4% MTD
Mobile World Group (MWG) delivered another strong quarter, supported by rapid expansion at Bach Hoa Xanh (BHX) and continued strength in its phones and electronics business. The two businesses are at different points in their growth cycles, however, and we view them differently. Our long-term conviction remains centered on BHX, while we are more cautious about how much of the current growth in phones and electronics can continue into next year. This is consistent with our view in July that we hold MWG primarily for BHX, while the electronics business provides earnings and cash flow in the meantime.
BHX grew revenue 49% YoY in Q3/2026 as it accelerated store openings. Its network reached 3,904 stores, up around 70% YoY, after opening a record 713 stores during the quarter and 1,345 in the first nine months, already ahead of its full-year plan. More importantly, the expansion has remained profitable: stores opened during 2026 are collectively profitable, while estimated net margin reached 3.2%, up 1 percentage point (ppt) YoY. BHX has an advantage over wet markets and smaller grocery stores in product quality, reliable supply, transparent pricing, and shopping experience. It also executes well in fresh food, a key driver of regular customer traffic, by maintaining product quality while keeping wastage under control. This gives us confidence that BHX can replicate its store model even as expansion accelerates.
We remain positive on BHX’s long-term opportunity as Vietnam’s grocery market continues to move from traditional to modern retail. At the same time, opening more than 700 stores in one quarter is a pace that deserves attention. We will therefore watch the profitability of the newer store cohorts closely to make sure that growth is not coming at the expense of store economics. This is particularly important as both BHX and WinCommerce are expanding rapidly into the same underpenetrated grocery market.
MWG’s other business, its phones and electronics chain Dien May Xanh (DMX), also had another strong quarter, with revenue growing 26% and net margin reaching 8.3% (+3 ppt YoY). Roughly half of the revenue growth came from higher prices as memory-chip costs increased, while the rest was mainly replacement demand. These factors will continue to support Q4/2026, the peak shopping season, but we do not expect them to repeat indefinitely. Consumer financing also remains important, accounting for around 38% of sales, which leaves demand exposed to the high-interest-rate environment. We therefore remain conservative on the phones and electronics outlook from 2027.
Overall, we continue to hold MWG for the long-term potential of BHX, while watching both the pace of grocery expansion and the sustainability of electronics demand. Reflecting BHX’s much faster store rollout this year, we raise our 2026 earnings growth forecast to 73%. We now expect earnings to grow at a 30% compound annual growth rate (CAGR) from 2025 to 2028, which already assumes that growth in the phones and electronics business slows next year.
Masan Group (MSN): Consumer Staples | 18.6% weight | +1.4% MTD
As discussed above, settling Masan Group’s remaining obligations depends on its businesses generating enough cash to fund them. The encouraging news is that both its core consumer businesses and non-core minerals business continued to perform strongly last quarter. WinCommerce (WCM) is still expanding profitably, while high tungsten prices continue to generate substantial earnings at Masan High-Tech Materials (MHT). This helped MSN grow Q3/2026 revenue 75% YoY and more than triple net profit.
Following our discussion of WCM last month, the business continued to perform well through September. Q3/2026 revenue grew 21% YoY while net margin improved to 2.5% (+0.9 ppt YoY), even as the network expanded to nearly 5,500 stores (+28% YoY). This gives us further confidence that WCM can grow without sacrificing profitability. Over the longer term, we believe Vietnam has room for both WCM and BHX to become large national chains: modern trade still accounts for only around 14% of grocery sales, compared with around 25% in Indonesia, where Alfamart and Indomaret have grown side by side into two large national chains. In the near term, however, both WCM and BHX are expanding quickly, so we will continue monitoring new-store profitability for signs that competition or expansion pace is starting to weaken returns.
The more immediate source of cash is MHT. Tungsten prices remained close to historical highs in Q3/2026 as supply outside China stayed tight, supported by demand from strategic industries including aerospace, defense, AI, and semiconductors. MHT benefited strongly, with revenue increasing more than sevenfold and operating income more than ninefold YoY during the quarter. We do not treat the current tungsten cycle as part of our long-term thesis because prices remain highly sensitive to China’s supply and export policies. In the near term, however, it gives management a valuable opportunity to monetize a non-core asset while market conditions are favorable.
Management has started to do exactly that. In October, Elmet Group, a long-standing MHT customer, completed the acquisition of around a 5% stake for approximately USD 125 million, valuing MHT at around USD 2.5 billion. We expect MSN to pursue similar transactions, bringing in more strategic and institutional investors while gradually monetizing its stake in MHT. At the same time, strong earnings at MHT are flowing back to shareholders through cash dividends. MSN is using this stronger cash position not only to reduce leverage, but also to increase its ownership of core businesses. In October, it raised its stake in Masan Consumer (MCH), its profitable and cash-generative consumer goods business. We see these steps positively because management is executing a clear capital-allocation plan: monetize non-core assets, reduce debt, reinvest in core businesses, and ultimately pay dividends to shareholders.
We remain positive on MSN. Its core businesses are increasingly able to fund their own growth, while the tungsten upcycle provides additional cash to deleverage and strengthen the balance sheet. We raise our 2026 earnings growth forecast to 153%, mainly to reflect MHT’s stronger-than-expected results this year, and now expect earnings to grow at a 31% CAGR from 2025 to 2028. We have a conservative view on MHT from 2027 given its sensitivity to tungsten prices, but acknowledge there could be upside risk to earnings. Our longer-term conviction in MSN continues to rest on its core consumer businesses.
FPT Corporation (FPT): Information Technology | 9.7% weight | -16% MTD
We sold part of our position in FPT during the month. In recent letters, we described FPT as one of our main holdings, with a cheap valuation and a core business that was still growing. Both remain true. We reduced the position for two reasons, and we want to set them out plainly.
The first is Japan, close to half of FPT’s global technology services revenue. Demand for upgrading and modernizing systems there is still very large. What is changing is how much of that work needs people, and FPT’s position makes it more exposed than most. In Japan, FPT mostly works as a subcontractor to large Japanese IT companies, which hold the client relationship and pass work down. Most of its contracts are also time-and-materials, meaning FPT is paid for the hours its engineers work rather than a fixed price for a finished result. AI can now do part of the routine coding and testing those engineers did. As the large Japanese firms adopt AI themselves, they need fewer outsourced hours for the same project, and at contract renewals they push to share the savings. A subcontractor paid by the hour has little room to resist either. Japanese growth slowed to 8% in Q3/2026 from 22% in H1/2026, and new orders also slowed down in Q3/2026 as some Japanese clients started renegotiating the contracts. If this continues, growth in FPT’s largest overseas market will settle lower than we had assumed.
The second reason is portfolio construction. Conditions in Vietnam are changing quickly, and we want cash to move toward companies with a better balance of risk and return. FPT was the natural source: large, easy to trade, and the holding where our confidence in growth has fallen.
What has not changed is the quality of the business. FPT is well managed and financially strong; its domestic technology business is growing more than two times YoY in 9M/2026, and its engineers are still becoming more productive each year. It is also moving toward contracts that pay for a reserved team or a delivered result rather than hours, and AI is creating harder, more valuable work, such as making AI systems secure and connecting them to existing systems. After the fall, the shares trade at around 9 times our 2027 earnings estimate. That is low for a business still growing earnings at double digits, even without the faster growth of the past, which is why we reduced the position rather than selling it all.
We will keep a close watch on four things: growth and new orders in Japan, how much clients push prices down at contract renewals, FPT’s progress in moving away from hourly contracts, and whether revenue per engineer keeps rising. We have lowered our forecast for annual earnings growth over the next three years from 16 – 17% to around 13%.
Closing Remarks
October indicates a turning point in where profits in Vietnam are generated. For over a decade, banks captured much of the reward from a fast-growing economy short of capital, with returns on equity above 20%. Policy is now deliberately moving part of that profit to borrowers and their customers. If bank returns settle toward 10 – 15%, as we expect, around a quarter of the VN-Index will grow earnings more slowly for years. The companies we own sit on the other side of that shift, and we forecast their earnings to grow around 30% a year through 2028.
The shift will not be smooth, because it depends on banks passing on lower rates rather than simply lending less. But it favors a portfolio like ours, with less exposure to the financial sector in the current environment and around companies taking share from the informal economy. This year we have sharpened that portfolio, and we enter the final two months with cash ready to add to it.
