In September, the Kenno Vietnam Fund's net asset value declined 7.1% in USD and 5% in EUR, against a 3.3% decline for the VN-Index. Two holdings, TNH Hospital Group (TNH) and Phu Nhuan Jewelry JSC (PNJ), accounted for more than 4.3 percentage points of our decline, each for idiosyncratic reasons specific to the company – the remaining eight holdings outperformed the market.
This is the second time this year that headwinds at individual companies have weighed on the fund’s performance, and we know that is unacceptable for an actively managed fund in the business of generating alpha for its clients. The performance gap is our responsibility, so we want to be clear about what the problem is, how we have addressed it, and why we believe the rest of the portfolio is in better shape than this month's and year’s headline numbers suggest.
PNJ is where our view has changed. We made the wrong call and underestimated what the diamond incident said about the company's corporate governance, and we have since sold down the position; we explain in more detail what we got wrong below.
At TNH, the decline in the share price is temporary, as it followed a board member's sale of his entire stake in a thinly traded stock, and we set out in the portfolio section why we are keeping the position. The board member in question is the former Executive Chairman we ousted earlier this year, as part of our restructuring of the firm’s management.
Beyond those two company-specific news, the picture is steadier than the market’s performance suggests for the month. The market declined mainly because of pressure from abroad: oil rose about 18% globally, and the US Federal Reserve raised interest rates for the first time since 2023, leaving Vietnam's central bank less room to cut rates without weakening the dong. That pressure landed on the price of money, not on the earnings of the businesses we own.
Apart from PNJ, we have not lowered our earnings forecast for any holding, and this month we raised our forecast for one of our largest holdings, Masan Group (MSN). With Vietnamese shares outside the Vingroup companies trading near 10 times earnings, close to their cheapest level in over ten years, we believe the market is paying far less for these earnings than they are worth.
The paradox is that, while our clients have lost money year to date as NAV per share has fallen, the upside potential has steadily improved. Earnings continue to grow, while higher discount rates have reduced the present value of future cash flows and pushed risk-asset valuations lower – Vietnam is the strongest buy it has been in a decade.
The VN-Index fell 3.3% in USD in September, and most of the pressure came from outside Vietnam. Oil prices rose again, with Brent crude climbing about 18% during the month to around USD 107 a barrel as talks to reopen the Strait of Hormuz stalled. In the US, inflation stayed at 3.4% in August, and petrol prices were more than 27% higher than a year earlier. Against that situation, the US Federal Reserve (the Fed) raised interest rates 0.25 percentage points to 3.75–4.00% on 16 September. It was the Fed's first increase since 2023, and most of its policymakers expect at least one more before year-end.
This matters for Vietnam because it limits how far rates can fall at home. If the State Bank of Vietnam (SBV) cut rates while the Fed is raising them, the gap between the two would widen, investors would have more reason to hold US dollars, and the dong would come under pressure, as it did over the past two years. The SBV is caught between supporting growth with lower rates and keeping the currency stable. Deposit rates in Vietnam have stopped rising, which is encouraging, but with the Fed signaling further increases, we do not expect domestic rates to fall soon. Higher rates weigh on assets investors see as riskier, including public shares, property, and private equity, and this has been one of the main reasons the market has struggled this year across different asset classes. On the positive side, the dong has been far more stable than in previous years, which reduces the risk of currency losses for foreign investors.
Regarding the energy issue in Vietnam, in our March and April letters, we stated that the situation was under control thanks to Government support. Here is where it stands now. Fuel imports in the first eight months were 47% higher than a year earlier, almost as much as in the whole of 2025, mainly because oil prices rose. That has been one of the main reasons pushing Vietnam into a trade deficit of USD 20.5 billion over the first eight months, against a USD 20 billion surplus for the whole of last year. It has also lifted inflation. Consumer prices rose an average of 4.5% over the first eight months, in line with the National Assembly's full-year target and well above last year's 3.3%.
The impact is real, but we think it is manageable for three reasons. First, the dong has held steady despite the trade deficit. This is thanks to foreign direct investment remaining strong, with disbursements of USD 17 billion (+12% year-over-year, or YoY), while higher domestic interest rates are encouraging foreign-invested companies to retain their profits in Vietnam rather than send them back to their home countries. Less money is also leaving through informal channels – as we mentioned last month – such as crypto, gold imports, and smuggling, as the Government brings these activities into a regulated framework. Second, underlying inflation, which excludes more volatile food and fuel prices, remains contained at 4.2%. This suggests that the rise in headline inflation is still concentrated in energy and food rather than spreading broadly across the economy. Third, consumer demand remains resilient: retail sales grew 13.3% in the first eight months, even after accounting for higher prices across some retail categories.
In addition, to keep fuel prices stable, the Government has waived import duties, environmental protection tax, and value-added tax on fuel. The excise tax on petrol returned on 1 July at a reduced 7% for E10 petrol. Pump prices are still about 30% above their level before the conflict, but around 20% below the March peak. Vietnam also switched fully to E10 petrol, a blend containing 10% ethanol, in June, which modestly reduces demand for fossil fuel.
As we noted last month, deposits have grown faster in recent months as banks kept deposit rates attractive. That reverses the pattern earlier in the year, when lending ran well ahead of deposits. Official data show the banking system's loan-to-deposit ratio, a measure of how much banks have lent against the deposits they hold, fell to 114% at the end of August from a peak of 118% at the end of June. The gap is still wide and will take time to close, but we expect it to keep narrowing over the next 12 months as money moves back into deposits from crypto, property, and gold.
Banks have also been borrowing more from international lenders. Vietnamese banks have signed or are arranging around USD 3.4 billion of international syndicated loans this year, meaning loans provided jointly by groups of foreign lenders. The largest include USD 1.44 billion for VPBank, USD 721 million for HDBank, and around USD 1 billion for Techcombank and Vietcombank, the country's largest bank, which is reported to be considering its first public US-dollar bond. These loans usually run for at least three years, which gives banks steadier long-term funding than domestic deposits and reduces the mismatch between short-term deposits and long-term lending. The risk is that the borrowing is in dollars at a time when the Fed is raising rates, and we are watching how banks manage that currency exposure.
In short, we want to stress that funding pressure has not disappeared, but conditions are moving in the right direction. As money returns to the banking system, we expect liquidity to improve, and in time, the stock market to benefit, particularly from today's valuations.
Finally, a brief update on the FTSE upgrade. Last month, we discussed FTSE’s announcement that Vietnamese stocks would receive a larger-than-expected weight in its indices. The change became official on 21 September, and Vietnamese shares will enter FTSE's global indices in four stages, rising from 10% of their full weight to 30%, then 65%, and 100% by September 2027, an approach designed to avoid sudden surges of money in or out. Vanguard alone, one of the world's largest index-fund managers, is reported to be planning around USD 2.5 billion of exposure, equivalent to the total amount we cited last month from all the index trackers. Because the money arrives in stages, we did not expect a sharp rise, and the market in fact fell in the days after the rebalancing on 18 September as some investors took profits, which is common around index events. The upgrade has now also revived expectations that MSCI will follow. As we said last month, we see that as a target for around 2030 rather than something close at hand. The nearer point is that foreign flows into Vietnam are expected to improve over the coming months.
Despite the pressures above, the long-term themes behind our investments remain intact, and several are even strengthening.
Consumer spending is holding up. The annual iPhone launch is one snapshot we follow. The iPhone 18 Pro and Pro Max went on sale in Vietnam on 18 September, at the same time as in the US and China, and early demand was very strong despite noticeably higher prices. It measures the top end of the market rather than the average household, but it shows that consumers with rising incomes are still spending. Mobile World Corporation (MWG) had the strongest iPhone launch in the market. More than 180,000 customers placed deposits for the two new Pro models through its TopZone and The Gioi Di Dong chains, twice the number for last year's models, and nearly 20,000 phones were delivered on the first day. Management says TopZone has now reached its target of a 50% market share. Two things helped: the largest allocation from Apple, and installment plans at 0% interest with no down payment for up to 18 months. Those plans are funded by partner finance companies, which makes them the part of this business most exposed if rates stay high.
The shift from traditional retail, such as wet markets and small family shops, to supermarkets and convenience chains is broadening. It is no longer driven only by households. Restaurants, food stalls, and small retailers are increasingly buying from established chains such as Bach Hoa Xanh (BHX, part of MWG) and WinCommerce (WCM, part of Masan Group), because they need reliable quality, clear sourcing, and proper invoices. Together, the two chains grew revenue by around 30% in H1/2026, against about 6% for the broader food market.
The Government is also acting more firmly against counterfeit goods, including fake health foods and supplements. A nationwide campaign launched in May has removed more than 14,000 online shops linked to counterfeit supplements, fake health foods, and substandard milk, and police have investigated twice as many food-safety cases as a year earlier. In one case, Ho Chi Minh City police arrested the owners of a health-food brand for adding a banned weight-loss substance to its products. Cases like these increase consumers’ focus on where healthcare products come from, and we expect demand to keep shifting toward trusted manufacturers such as Traphaco (TRA) and reputable pharmacy chains such as Long Chau (part of FPT Retail, or FRT).
To conclude this section, what has changed over the last month is the external environment, including higher oil prices, a Fed that has started raising rates again, and less room for rates to fall in Vietnam. What has not changed is the earnings outlook for our companies. Apart from PNJ, which we discuss below, we have not lowered our earnings forecast for any holding this month, and third-quarter guidance indications from our companies point to continued growth. That is why we believe this month's decline reflects the price of money rather than the value of the businesses we own. Vietnamese shares now still trade at close to 10 times earnings if we exclude Vingroup-related stocks from the calculation, close to their cheapest level in over ten years. The short-term pressure may not be over, but at these prices, we think the market already reflects a great deal of bad news.
In September, our Investment Team met privately with Traphaco’s (TRA) CEO to discuss the company’s first-half results and outlook, which we cover in the TRA section below.
We also joined a discussion on Resolution 21, issued by the Communist Party Central Committee on 28 July, which sets the direction for land and property policy and for an amended Land Law that the Government plans to submit to the National Assembly in October. Two points stood out. The State will continue to oversee how land prices are set while aiming to keep them reasonable, which could lower costs for developers and businesses. And the resolution targets long-standing legal obstacles and land hoarding, with projects that fall behind schedule liable to be reclaimed and higher taxes on unused land. For Nam Long Investment (NLG), our property holding, we see this as positive on balance: clearer approvals and more predictable land costs are expected to support its pipeline, while higher taxes on idle land matter less for a developer that has already resolved most of the legal bottlenecks affecting its landbank. More broadly, a more transparent land market is likely to support healthier property development and reduce the economy's reliance on real estate.
Regarding our rebalancing activities, we sold down our stake at PNJ as our view on the company has changed. Last month, we wrote that the risks from the authorities' investigation had fallen significantly and that we expected the business to recover gradually. We underestimated what the diamond incident said about the company's governance, and that has seriously weakened our investment case. In the recent extraordinary general meeting (EGM) documents, PNJ forecast an after-tax loss of about VND 6.3 trillion (around USD 240 million) for 2026. Most of it comes from a provision of about VND 7.1 trillion (more than USD 270 million) for buying back and exchanging diamonds previously sold to customers, which we strongly believe is an over-provisioning assumption.
What concerns us more is the way the information came out rather than the numbers themselves. A few days before the documents were published, PNJ insiders sold a large block of shares to other investors through negotiated trades, with no indication of the negative results to come. For a company whose value rests on customers’ trust, that sequence of actions raises serious governance concerns for us and further weakens our investment case – we cannot remain invested in a company where, when times get tough, leadership puts its own interests ahead of those of shareholders.
With hindsight, we should have reduced the position more decisively when the case first began to weaken in July, rather than waiting for the investigation to conclude. Holding PNJ below its normal weight limited the damage, but the insider trading in September still cost the fund 2.4 percentage points this month. Unethical behavior is inherently difficult to anticipate, even with deep research and boots on the ground. We nevertheless take responsibility for not acting earlier, and are thoroughly reviewing our investment process to ensure we have the right safeguards in place against similar situations in the future.
Moving to TNH Hospital Group (TNH), the company’s share price fell sharply after a board member registered to sell his entire holding of about 5.3 million shares, or 3.2% of the company, between 11 September and 9 October. TNH shares trade in low volumes, so a block of that size puts heavy pressure on the price, though we believe this is just a temporary weakness and does not reflect the improvement we are seeing in the underlying business.
The business is actually improving. Revenue grew 28% in H1/2026, although TNH still made a net loss of about VND 71 billion (USD 2.7 million), mainly from staff hired ahead of new hospital openings and higher interest costs at its newer facilities. TNH now runs five facilities across three provinces and plans no new openings for at least three years. We expect its two newest hospitals, TNH Lang Son and TNH Viet Yen, to cover their fixed costs, including depreciation and interest, within one to two years. The company plans to raise money through convertible bonds, subject to shareholder approval at an EGM in late October or early November, to refinance debt and fund the rest of its restructuring. We are reviewing the terms and the use of funds before deciding whether to take part. Because TNH is hard to trade in size, our priority is to support the company in completing its restructuring and then sell our stake to a strategic buyer in the coming years.
Below, we highlight investment cases that illustrate our portfolio management activities during the month.
Masan Group is having a strong year across both its core consumer businesses and its non-core natural resources arm. Two businesses stand out: WinCommerce (WCM) is expanding profitably with a proven store format, while Masan High-Tech Materials (MHT) is benefiting from higher tungsten prices. Both are generating more cash for the group, helping it repay debt, lower interest costs, and improve earnings.
WCM is running well ahead of plan. Revenue increased 26.6% YoY in 8M/2026, above management’s full-year target of 15–21%, while net margin reached 1.5% (+1.1 percentage points YoY). Growth has come mainly from a store format designed for rural consumers. Rather than competing with wet markets in fresh food, WCM focuses on packaged groceries, where assured quality, a wider range, and transparent pricing give it an advantage over many small rural stores. The right product range helps new stores attract customers and become profitable quickly: more than 90% of those opened in Q2/2026 broke even within the same quarter. In 8M/2026, WCM opened 796 stores, of which 78% were in rural areas. The model is working, and we expect WCM to build on this success by growing its store network at a 14% CAGR over the next two years.
This matters because Masan Group borrowed heavily to acquire WCM in 2019, and the resulting interest costs have weighed on group earnings. That is now changing: WCM is profitable and increasingly able to fund its own expansion. If it maintains the same healthy store economics as it grows, rising profits should provide more cash for debt repayment. This is a marked change from several years ago, when WCM depended heavily on external funding to expand.
MHT is another source of cash for the group this year. China produces around 80% of the world’s tungsten and has tightened mining quotas and export controls. With few large suppliers outside China, the price of ammonium paratungstate (APT), a key tungsten product made by MHT, has increased more than sixfold since late last year. This helped MHT’s operating profit rise 541% YoY in Q2/2026. Management is using the upcycle to return cash to Masan Group: MHT has paid around USD 39 million in dividends to the group, while Masan Group plans to sell up to a 10% stake in MHT in October for around USD 250 million. The planned transfer of MHT’s listing to the Ho Chi Minh Stock Exchange (HOSE) in 2027 will improve liquidity, attract a broader range of investors, and make further share sales easier.
Together with stronger cash generation from core consumer businesses, the tungsten upcycle has helped reduce group net debt to EBITDA from 2.8 times at the end of 2025 to 2.5 times at the end of Q2/2026. MHT is not central to our long-term consumer thesis, but it is helping Masan Group repay debt faster, lower interest costs, and improve earnings. Given the strong year-to-date results, we raise our 2026 earnings growth forecast from 70% to 130%, with a three-year earnings CAGR of 33% from 2025 to 2028.
Our meeting with TRA's CEO last month gave a clear picture. Revenue is growing faster than we expected because the market is moving toward trusted manufacturers, but profit has lagged because the business is not yet run as efficiently as it could be. Recent management changes give us more confidence that this can improve.
Revenue rose 8.2% in H1/2026. Sales of TRA's own products, its core business, grew 13%, ahead of our forecast, at a time when growth slowed at many other pharmaceutical companies. The gap to total revenue reflects lower sales of third-party products it distributes. Herbal medicines, about 60% of revenue, grew roughly 15% YoY. Many small sellers of supplements and health foods used to compete on price by avoiding tax, hiding where products came from, cutting production standards, or selling unofficial imports online. As enforcement tightens, many cannot comply and are leaving the market, and TRA, with its established brand and herbal expertise, is well placed to take their customers. Large pharmacy chains, including Long Chau and An Khang, are also buying more from TRA because they trust its quality and sourcing.
Modern (Western) medicines grew 9% despite some difficulty sourcing active ingredients. Last year, TRA won a two-year, USD 1.5 million contract to supply a public hospital with a medicine made under a technology-transfer agreement. The contract is small relative to revenue, but it shows improving research capability in an area that has not traditionally been a strength, and hospital contracts support a medicine's reputation in higher-margin pharmacy sales. The bigger priority is a new factory built to European Union manufacturing standards (EU-GMP). Certification would let TRA compete for the top two tiers of public hospital purchasing, which account for most hospital medicine spending. This is the project that has been delayed several times before. TRA has now appointed a director to lead it; construction is expected to start in Q1/2027, and it will take 18 months to two years. We estimate the factory could add at least 30% to our valuation of TRA once it is running.
Operating efficiency is still below our expectations, with a net margin of around 10% versus a range of 13–15% for comparable companies. TRA has appointed a new chief financial officer, and SCIC, the state investment arm and a major shareholder, appears likely to take a more active role in improving returns on state capital, as we discussed last month. We forecast net profit growth of around 12% a year over the next two years, and TRA trades at 11 times our 2026 earnings estimate, significantly below the 17–25 times range at which comparable pharmaceutical companies trade.
At the market level, September's weakness was driven mainly by external pressures rather than a deterioration in Vietnam's domestic fundamentals. We cannot say when the Fed will stop raising rates, and pressure from abroad may continue for some months. What we can see is that funding at home continues to improve, and that foreign index money is now arriving in a more mechanical and predictable way than before.
More importantly, the businesses we own continue to grow. Our portfolio companies are on course to increase earnings by around 40% this year and achieve a three-year earnings CAGR of around 30%, while trading at only 15 times those earnings. At the same time, Vietnamese equities outside the Vingroup companies are close to their cheapest valuation in more than a decade. For long-term investors, we therefore see current levels as one of the most attractive opportunities we have had to add exposure to Vietnam in many years. The past few months have been painful for existing investors, but lower prices alongside growing earnings have materially increased the return potential from here.