The stock market: Bottom-up

Foreign investors sold $9 billion worth of Vietnamese stocks over the last two years but will likely deploy some money back into the market given the imminent FTSE upgrade to EM status, write VinaCapital's chief economist Michael Kokalari and senior economist Thai Viet Trinh.

The top-down arguments to buy the VN-Index are straightforward. But investing in Vietnam’s stock market requires astute, bottom-up stock selection and 2026 looks likely to be another year in which fundamental investors will need to navigate a “Mosaic of Idiosyncrasies,” some of which are discussed below.

Before delving into these, the compelling “beta-based” arguments to buy the market include:

- The benchmark VN-Index is trading at 13x FY26 P/E versus 18% expected earnings growth, or at a 0.7x PEG ratio.

- The earnings of most sectors in the stock market are expected to grow by around 10-20% in 2026 (with a few outperformers closer to 30% growth).

- Government reforms and other measures are set to unleash real estate development activity that will benefit property developers and banks, which account for over half of the VN-Index.

Further to the last point, international media have reported that Vietnam’s Communist Party Congress should go smoothly, and the ambitious reform agenda launched in 2025 will continue this year. These reports have already acted as a catalyst for the stock market. Other potential positive catalysts for the market include a growing IPO pipeline and a resumption of foreign inflows into the market.

Foreign investors sold $9 billion worth of Vietnamese stocks over the last two years but will likely deploy some money back into the market given the imminent FTSE upgrade to EM status.

Domestic purchases more than offset the selling by foreign investors, demonstrating strong local interest in the market, which in-turn is supporting an ambitious pipeline of IPO deals, including the expected IPO of Vietnam’s leading electronics chain, Dien May Xanh, in 2026. Additionally, up to 20 other listings over the next three years could add a combined market cap of circa $20 billion to Vietnam’s stock market.

Notwithstanding all of the “top-down” arguments to buy the VN-Index, stock-level dispersion is likely to be the defining feature of Vietnam’s equity market in 2026. For example, we mentioned that the VN-Index’s forward P/E ratio is currently 13x, but its valuation is closer to 11x when excluding the Vingroup family stocks. Below, we briefly discuss what we see as the most important idiosyncratic issues investors in Vietnam’s stock market need to navigate this year.

Rising rates and banks (31% VN-Index weight)

Bank stocks, which account for 31% weighting of the VN-Index, are trading at around a 1.4x price-to-book valuation versus 17% return on equity, and we expect earnings growth in the high teens in 2026.

Furthermore, interest rates in Vietnam increased by about 100 bps in 2025, and we expect another 50-100 bps increase in 2026 (for 12-month deposit rates). Rising rates are usually positive for banks' net interest margins and earnings, so all of the points above should make a sector-wide overweighting of bank shares compelling, albeit with the usual provisos regarding the asset quality of individual banks and other factors.

However, Vietnamese banks’ CASA ratios are quite low at circa 20-25% (depending on how the figures are calculated), which limits the Net Interest Margin (NIM) expansion that typically accompanies rising rates (the sector-wide earnings growth we expect is driven by an expectation for circa 18% credit growth in 2026). State-owned commercial banks account for about half of lending in Vietnam and they will likely limit rate increases on loans in order to help support GDP growth.

Furthermore, certain private sector banks that are closely tied to real estate groups may sacrifice some net interest margin to support their affiliated developers. In short, some banks with low funding costs are well-positioned to benefit from rising rates, but avoiding banks with very high loan-to-deposit ratios and focusing on asset quality will be key (ie. astute, bottom-up stock selection is key to successfully investing in Vietnamese banks).

Real estate and infrastructure (26% and 3% VN-Index weight)

Real estate presales in Vietnam doubled in 2025, which should boost developers’ earnings in 2026. Furthermore, new real estate regulations should unleash a wave of development activity, and infrastructure investment will drive demand for new housing units, both of which should support developers’ revenues and earnings.

That said, recently enacted new real estate regulations will help certain developers more than others depending on the legal status of their existing landbanks. Also, the location of landbanks is key to benefitting from infrastructure investment. For example, developers with landbanks in the south will benefit from the fact that there has been less development there thus far.

As mentioned above, recent interest rate increases have cooled speculative real estate buying and made end users more discerning. In particular, projects that are overpriced or have subpar construction quality have seen sales freeze. While we do not expect a surge in prices or a frenzied market this year, we do expect steady absorption of units produced by developers who offer housing that is suitable for owner occupation. This nuance once again highlights the importance of a bottom-up approach to differentiating between various listed real estate developers.

Finally, the surge in the Government’s infrastructure spending also presents investment opportunities for fund managers, although many beneficiaries of this surging spending are unlisted. That said, savvy stock pickers can uncover some well-situated companies that can benefit from both the overall increased level of Government infrastructure investment and from favorable idiosyncratic factors.

Oil service companies, for example, can benefit from Vietnam’s energy infrastructure build-out. Leading Vietnamese steel maker HPG also benefits from infrastructure development and is in the process of doubling its production capacity - which has been a consistent catalyst for the stock in the past.

Margin lending

Margin lending surged to over $10 billion in 2025 (or to more than 10x daily trading volume), which helped fuel the jump in the VN-Index last year. In recent weeks, the liquidity crunch mentioned above resulted in a pull back to some of that margin, especially via reduced lending by certain bank-backed brokers; there has been talk of a “crowding out” of credit access to brokers, SME firms, and others because of the disproportionate volume of lending to large conglomerates.

That tightness is alleviating somewhat, now that the calendar year-end has passed since banks are obligated to meet certain statutory liquidity ratios at year-end. Consequently, we expect the resumption of a certain amount of margin lending to push the market higher in the lead-up to the Lunar New Year holiday, bearing in mind that bank lending to brokers is attractive from a NIM perspective.

Some other idiosyncratic opportunities in 2026

- Consumer companies’ stock prices underperformed in 2025. The modest consumption recovery we expect this year (discussed above) should help push the prices of some of those stocks higher in a catch-up rally.

We are especially enthusiastic about some companies that sacrificed some of their earnings in 2025 in order to “plant seeds” for business expansion in 2026 (for example by spending money to build out their direct distribution channels). Also, some stocks in the sector are trading at attractive valuations, with PEG ratios under 1x.

- Technology stocks sold off in 2025 because the AI revolution is having a mixed impact on Vietnam’s tech sector. On the one hand, much of the outsourcing work these companies do is ripe for disruption by coding agent tools like Claude Code CLI, but those same tools could boost the productivity of Vietnam’s excellent software engineers. Furthermore, AI-driven demand could create opportunities for new digital transformation outsourcing work for local IT giants.

- Rubber plantations converting their land into industrial parks was a niche investment theme a few years ago that could see renewed interest this year, especially as it becomes increasingly clear that Trump’s tariffs are not a threat to Vietnam.

- Defensive stocks, including companies that generate cash, companies with high dividend yields, certain utilities and certain state-owned enterprises (SOEs) that are likely to get some form of Government-related bump to their revenues could all attract investor attention in 2026.

Further to that last point, the Government recently announced a new initiative, Resolution 79, that sets ambitious targets for the development of SOEs in much the same way Resolution 68 has for Vietnam’s private sector (which we discussed in this report). Resolution 68 had a major impact on the share prices of several listed companies last year, and Resolution 79 could have an outsized impact on certain listed SOEs this year.

Understanding the VN-Index surge in 2025

The stock price of Vietnam’s largest conglomerate, Vingroup (VIC), surged 736% in 2025, pushing the company’s market cap up to over $45 billion, equivalent to 15% of the VN-Index.

The stock’s daily trading volume is well below $50 million, making it easy for its stock price to get squeezed higher on thin volume. VIC-family stocks (VIC, VHM, VRE, VPL) now account for nearly a quarter of the VN-Index, so those names benefit from passive inflows to Vietnam’s stock market and from “closet indexing” purchases by fund managers.

In short, Vingroup is one of Vietnam’s largest companies, with assets approaching 10% of GDP, so it is natural that Vingroup will be supported by the Government as part of the campaign to develop “national champions,” and the company is likely to be the principal project developer of a significant share of major infrastructure projects in the coming years.

Additionally, VIC (along with other select real estate developers and conglomerates) is set to sit atop a revamped real estate development industry. These chosen firms will negotiate directly with the Government on land clearance/zoning issues and then parcel out the actual project development to lower layers in Vietnam’s real estate development value chain.

Vingroup is taking on significant debt to start infrastructure and energy generation businesses - sectors in which it has little-to-no experience - and it will need to quickly generate the cash flows required to service this debt; bear in mind that its foray into EV manufacturing has cost over $10 billion to-date.