Portfolio Manager's Note

25 August 2026

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

Portfolio Manager's Note

VEIL is a London-listed investment company investing primarily in listed equities in Vietnam and is a FTSE 250 constituent.

A Market Distorted by Flows

Tuan Le, Lead Portfolio Manager

Vietnam's economy and listed corporate earnings are strengthening while share prices have gone the other way, held down by foreign selling and a domestic flight to bank deposits. Easing inflation and September's FTSE upgrade are what could turn it. Listed companies grew their H1 earnings by 47%. Strip out four index heavyweights, VIC, VHM, STB and LPB, and the VN-Index (VNI) was down 10.2% by the end of July in local currency terms. Those same four names held the index itself roughly flat, even as corporate earnings kept growing. A market does not usually ignore earnings of that order. When it does, the cause is rarely the companies, it is who is buying them, and this year the bid narrowed to a handful of index megacaps while the rest of the market was left behind.

Two flows ran in the same direction at once, and neither was about earnings. Foreign investors net sold around $3.4bn over the year to end-July, for reasons external to Vietnam: a firm dollar and the prospect of the Fed holding rates higher for longer, which dulled the reward for holding emerging-market risk, the oil-driven inflation scare, and the strain the strong dollar and higher oil prices placed on the Vietnam dong. Domestic investors, who had previously been absorbing much of this foreign selling, moved into bank deposits, drawn by the rates banks were paying to attract funding. With buyers gone from both sides, market liquidity thinned in the same quarter that earnings accelerated. Price and profit came apart not because earnings disappointed, but because the buyers disappeared.

The pull into deposits has a specific cause, and it is not distress. Credit is growing faster than deposits as lending flows to the large infrastructure and property projects now dominating the loan book. With deposits scarce, banks have raised rates to fund the gap, holding market rates high and keeping household savings in bank accounts rather than equities. That is the loop behind the weak domestic bid, and inflation is what the State Bank of Vietnam (SBV) must weigh before adding the liquidity that would break it.

Here the news has quietly turned. Consumer prices fell 0.1% MoM in July, a second consecutive monthly decline. Annual inflation has eased in step, running more than a percentage point below May's 5.6% peak, which the oil price spike after the US-Iran conflict had driven; the seven-month average of 4.4% sits below the government's 4.5-5.0% target. Core inflation at 4.6% still warrants watching, but the direction has changed. The policy room that looked tight in the second quarter is opening again, and with it the eventual scope for deposit rates, and the loop holding equities down, to ease.

None of this would matter if the underlying economy were fragile, but it is quite the opposite. Industrial production rose 11.4% YoY to end-July, the strongest such run in years, but the most eye-catching figure is manufacturing employment, up 3.3%. Firms add workers when they believe new orders are real, not when they are running existing lines. The trade account tells a similar story, swinging from a $10.4bn surplus a year ago to a $20.5bn deficit. Read alone, that looks like an economy living beyond its means. In fact, 94% of those imports are production inputs, the fuel, materials, machinery and components a growing manufacturing base pulls in; a heavier energy bill after the oil spike adds to the value, but the bulk is new capacity. And foreign capital is funding it: $15.2bn of FDI was disbursed to end-July, the highest in five years, with more than four-fifths going into manufacturing.

The clearest proof is in the earnings themselves. VNI profits rose 45% YoY in Q2, a third straight quarter of growth. This was not a Vingroup ecosystem effect; strip those companies out and profits still grew 27%. Banks, the market's largest profit pool and VEIL's top sector position, grew Q2 pre-tax profit 24% YoY, with net interest margins widening at 20 of 27 listed banks. Earnings growth was supported by both top-line expansion and margin improvement. Revenue increased 39% YoY, while gross margins expanded across most sectors, with power, steel and modern retail the standouts. Close to two-thirds of listed companies reported YoY profit growth, and by mid-year, aggregate H1 earnings had reached 54% of Dragon Capital's full-year forecasts.

Growth that broad is not a few names holding up an average, it is an economy earning its way through a market that has stopped watching.

What this means for VEIL

The forces that pushed prices down are beginning to turn. Inflation is reopening policy room and foreign positioning is unusually light after months of selling. FTSE Russell's reclassification to secondary emerging-market status takes effect on 21 September, phased in tranches to full inclusion by September 2027. Around 28 large, liquid stocks qualify, many of them core VEIL holdings. We estimate the passive inflows this will generate at around $1.5bn, with more if active managers follow. The sum is modest and will not, on its own, move a market this size. Its value is the door it opens, bringing Vietnam into the much larger pool of emerging-market capital that could not own it before.

The portfolio is built for that turn. VEIL's NAV was down 11.8% for the year at end-July against a VNI down 1.4% on the same basis, a gap driven largely by an underweight in the index heavyweights that have led year to date, and by the retail and mid-cap residential names that bore the brunt of July's tariff and liquidity-driven selloff. VEIL's full half-year results will follow in its interim report, due in the last week of September. Banking, the largest position, has been tilted toward the stronger funding profiles that the rate pressure rewards. Beyond banks, infrastructure and domestic consumption are the core overweights. Infrastructure is the most direct way to own the public-investment cycle now driving the economy, and domestic consumption captures the rising demand from a growing middle class and a rapidly modernising retail market.

We believe the SBV may add liquidity to the banking system to calm deposit rates, but the process takes time and is inflation-sensitive. If the Fed holds rates high or tightens further, the widening differential would pressure the dong, likely meaning Vietnam's rates remain elevated. Foreign selling has slowed but not stopped, and the FTSE inflows, though they begin in September, build in tranches through 2027 rather than arriving in a single wave. The case rests on these pressures easing, not vanishing.

That leaves a market whose price has fallen while its earnings have risen. At end-July, Dragon Capital's Top-100 universe traded on a forward P/E of 10.7x, and 9.4x excluding VIC, valuations last seen at prior market troughs, with VEIL's portfolio forward P/E at 9.7x, and 9.2x ex-VIC. With H1 earnings already at 54% of full-year forecasts, the valuations look less like a judgement on Vietnamese companies than a record of who has not been buying them. As liquidity returns and that gap closes, the cheapest and fastest-growing names should lead, and that is where the portfolio is concentrated. The earnings have grown regardless, and we have been adding into the weakness.

Top Ten Holdings (58.0% of NAV)

Source: Bloomberg, Dragon Capital

Company returns are share-price total returns; all returns are in USD terms, as at 31 July 2026.

For further information, please contact:

Vietnam Enterprise Investments Limited

Thuy Anh Nguyen

+44 7885 886492

[email protected]

Jefferies International Limited

Stuart Klein                                                                                                                       

+44 207 029 8703

[email protected] 

Montfort

Alex Everett

+44 (0)77804 31533

Nita Shah

+44 (0)79041 20960

[email protected]

h2Radnor

Iain Daly

+44 20 3897 1830

[email protected]

LEI: 213800SYT3T4AGEVW864