Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Vietnam Is Winning the Emerging Markets Race in 2026
Transcript
- Lucas: So there's an emerging market that's quietly outperforming most of its peers this year, and it's not one of the usual suspects. I'm talking about Vietnam. Luna: Vietnam has been on my radar too. The vn index is up about 8 percent year-to-date, while the broader EM index, VWO, is basically flat. What's driving it? Lucas: It's a combination of factors, but I think the biggest story is manufacturing. Vietnam has become the go-to destination for companies doing the 'China plus one' strategy. You know, Samsung now produces about half of its smartphones in Vietnam. Apple has been shifting some AirPods and iPad assembly there. And it's not just electronics—textiles, footwear, furniture. Luna: Right, and the numbers back that up. Vietnamese exports were up 14 percent year-over-year in the first quarter. That's massive. And foreign direct investment hit $6.3 billion in Q1 alone, which is a record for the quarter. Lucas: Exactly. And what's interesting is that this isn't just a pandemic-era blip. The trend has been building for a decade. Vietnam's labor costs are still about half of China's, and the workforce is young and increasingly skilled. Plus, the government has been aggressive with trade deals—the CPTPP, the eu vietnam free trade agreement, and now they're part of the RCEP. Luna: But of course, there are risks. One is that Vietnam is heavily dependent on China for raw materials and components. So if the us china trade war escalates further, Vietnam could get caught in the crossfire. Lucas: That's a real concern. And there's also the infrastructure bottleneck. The country's ports and roads are straining under the volume. The government is spending big on infrastructure—the $60 billion North-South high-speed railway, for instance—but that takes time. In the short term, logistics costs are rising. Luna: And then there's the property market. Vietnam saw a real estate boom in 2021-2022, and then a crackdown on bond issuances and corruption. That's cooled things off. But the stock market overall seems to be looking past that. Lucas: Yeah, the vn index dropped about a third in 2022, but it's recovered strongly. The banking sector, which is a big part of the index, has been doing well. And retail investors are very active—similar to what we saw in India a few years ago. There's a real retail trading culture in Vietnam. Luna: So for investors, how do you play it? There's the VanEck Vietnam ETF, ticker V-N-M, which is the most liquid. And then there's the Global X MSCI Vietnam ETF, which is smaller. Lucas: Right. VNM has about $400 million in assets and it tracks the MVIS Vietnam Index. The top holdings are Vingroup, which is a conglomerate, and some banks like Vietcombank. It's a decent way to get broad exposure. But you've got to be aware that it's a concentrated market—the top ten stocks make up over 60 percent of the index. Luna: And the currency is another factor. The Vietnamese dong has been relatively stable against the dollar, which is unusual for an EM currency. The central bank has managed it carefully. Lucas: That's a big plus. Compare that to, say, the Turkish lira or the Argentine peso. Stability attracts foreign capital. And Vietnam's fundamentals are strong—GDP growth was over 7 percent last year, and they're running a trade surplus. The current account is in decent shape. Luna: But let's not over-romanticize it. Vietnam is still a one-party state with significant governance risks. Corruption is an issue, and the legal system can be unpredictable. Remember the 2018 environmental protests and the crackdown on activists. Lucas: Absolutely. The political risk is real. But the government has shown a pragmatic commitment to economic reform. They want to be the next manufacturing hub. And they're making the right moves—improving infrastructure, signing trade deals, and keeping the currency stable. Luna: One thing I find interesting is how Vietnam compares to other 'China plus one' beneficiaries like India and Mexico. India has a bigger domestic market, but its bureaucracy is heavier. Mexico has nearshoring advantages, but the peso strengthens hurt exporters. Vietnam seems to have found a sweet spot. Lucas: Right. It's not as big as India, but it's more open to trade. And its labor costs are lower than Mexico's. The key question is whether Vietnam can move up the value chain. Right now, they're doing a lot of assembly, but they want to move into higher-value components and R&D. Samsung has set up a research center in Hanoi, which is a good sign. Luna: Lucas, I want to pause for a moment. If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. That's literally what keeps these conversations going. Lucas: Yeah, we don't run ads, and that's a deliberate choice. So if you find value in what we do, that link is the way to support it. Anyway, back to Vietnam—one risk I haven't mentioned is the property market. There was a lot of speculative building in recent years, and some developers are struggling with debt. Luna: Right, there's a potential overhang. But the government has been trying to manage it, and the stock market seems to have priced in a lot of the bad news. The banking sector is well-capitalized, so a systemic crisis seems unlikely. Lucas: Let's talk about valuations. The vn index is trading at about 14 times forward earnings, which is in line with its five-year average. So it's not cheap, but it's not bubble territory either. Compare that to India, which is at over 20 times, and Vietnam looks more reasonable. Luna: And dividend yields are around 2 percent, which isn't great, but for a growth market, that's typical. The real return has to come from earnings growth. Lucas: Exactly. And earnings growth has been strong. Corporate profits in Vietnam grew about 15 percent last year, and analysts expect similar growth this year. That's driven by the manufacturing boom and domestic consumption. Luna: One thing to watch is the US election cycle. If there's a change in trade policy, Vietnam could be affected. But for now, the narrative is positive. Lucas: Sure. And we've seen ETF flows into Vietnam funds double since January. That's a vote of confidence. But the market is still small and volatile. It's not for everyone. Luna: So to sum up, Vietnam is a compelling story in the emerging markets space—strong fundamentals, favorable demographics, and a clear strategy. But it comes with governance and concentration risks. Listeners should do their own due diligence. Lucas: Absolutely. Next time, we might look at another overlooked EM—maybe Indonesia or the Philippines. But for now, I think Vietnam deserves the spotlight.