Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Vietnam Is Becoming the Semiconductor Link in EM Supply Chains
Transcript
- Lucas: Vietnam's stock market, the VN Index, is up about 5.5 percent in the last five days. That's outperforming most of its emerging market peers, and it's not just a broad risk-on bounce. There's a specific story underneath this. Luna: I've seen the headlines about chip assembly plants moving out of China. Is that what's driving this? Lucas: Exactly. Vietnam is quietly becoming the semiconductor link in emerging market supply chains. We're not talking about cutting-edge chip fabrication like in Taiwan or South Korea. This is the assembly, testing, and packaging part of the chain — the less glamorous but absolutely critical stage where chips get put into finished components. And Vietnam is grabbing a disproportionate share of that business. Lucas: Look, we're able to do shows like this every day because a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's ad-free, listener-funded, and your support is what makes these deep dives possible. Luna: Yeah, it's a small thing that makes a big difference. Keeps us independent and focused on what matters. Lucas: So back to Vietnam. The global semiconductor supply chain is undergoing a massive reconfiguration. The US CHIPS Act, the export controls on China, the push for supply chain resilience — all of that is creating a 'China plus one' strategy for many multinationals. And Vietnam is the 'plus one' for a lot of chip assembly and testing. Luna: Right, we saw this in the headlines — a major chipmaker just announced a $500 million investment in a new facility near Ho Chi Minh City. That's on top of the $1.6 billion they've already committed. Lucas: That investment alone is about 0.5 percent of Vietnam's GDP, which gives you a sense of its economic weight. But the trend is broader. Companies like Intel, Amkor, and Hana Micron have all expanded their Vietnam operations in the last two years. The country now accounts for about 10 percent of global semiconductor assembly and test capacity, up from basically zero a decade ago. Luna: So what's the appeal over, say, Thailand or Malaysia, which also have strong electronics manufacturing? Lucas: A few things. First, labor costs — Vietnam's wages are still about 30 to 40 percent lower than China's, and the workforce is young and increasingly skilled. Second, the government has been aggressive with tax incentives, including a five-year tax holiday and a 5 percent tax rate for 10 years for large-scale semiconductor projects. Third, the infrastructure is improving fast — deep-sea ports, new highways, and reliable power. That last one is critical for semiconductor plants that run 24/7. Luna: Power reliability has been an issue, though. Remember the blackouts last year? Lucas: That's the risk. Vietnam had some serious power shortages in 2025, which raised red flags for investors. But the government has since fast-tracked several LNG power plants and renewable projects. The new capacity coming online this year should help. But it's a valid concern that investors are watching closely. Luna: And politically, Vietnam is walking a tightrope. It's a one-party state with close economic ties to China, yet it's also deepening security and trade links with the US and Japan. Lucas: That's actually part of its appeal. Vietnam is seen as a neutral ground. It doesn't have the same geopolitical risk as Taiwan, and it's not as closely aligned with China as, say, Malaysia. The US Commerce Department has designated Vietnam as a 'trusted' partner under the CHIPS Act, which opens the door for more American investment. Luna: But there's a flip side. If us china tensions escalate further, Vietnam could get caught in the middle. And its reliance on China for raw materials and equipment is a vulnerability. Lucas: That's the double-edged sword. Vietnam imports a lot of silicon wafers and chemicals from China. But that's also why the semiconductor assembly and test stage is the perfect entry point — it's less capital-intensive than fabrication, so it's easier to build local supply chains. The Vietnamese government is already planning a national semiconductor strategy with a target of training 50,000 engineers by 2030. Luna: That's ambitious. For context, Taiwan has about 200,000 semiconductor engineers today. Lucas: It's a long-term play. But for investors, the near-term catalyst is clear. The global semiconductor market is expected to grow at a compound annual growth rate of about 8 percent through 2030, and the assembly and testing segment is growing faster as chips become more complex. Vietnam is well-positioned to capture that growth. Luna: So how would someone actually invest in this? Is it through the Vietnam ETF, ticker symbol V-N-M? Lucas: That's one option. The VanEck Vietnam ETF, V-N-M, is up about 12 percent year to date. But it's a broad fund that includes banks, real estate, and consumer goods. If you want a purer play on the semiconductor theme, you'd look at companies like Hana Micron Vietnam or Intel's operations — but those aren't publicly traded in Vietnam. Another angle is the property developers building industrial parks in key provinces, like Becamex IDC, which is listed on the Ho Chi Minh Stock Exchange. Luna: And the risk? Besides power and geopolitics, what else could derail this? Lucas: The biggest risk is a global recession that slashes chip demand. The semiconductor industry is cyclical, and if the US economy slows sharply, demand for chips in autos, smartphones, and data centers could drop. That would hit Vietnam's nascent industry hard. But for now, the secular trend toward supply chain diversification is stronger than the cyclical risk. Luna: So Vietnam is becoming the semiconductor link, but it's still a work in progress. Lucas: Exactly. It's not going to replace Taiwan or South Korea overnight. But for the assembly and testing stage, it's already a key node. And as the global supply chain continues to fragment, Vietnam's role is likely to grow. The question is whether the infrastructure and talent can keep pace with the ambition.