Riding the re-rating case for Southeast Asia's standout story

It is rare for major index providers to upgrade countries from ‘frontier’ to ’emerging market’ status, but one country earned those stripes in April, when FTSE Russell promoted Vietnam. Prior to that, there had not been such an elevation since Kuwait advanced in 2020.

These transitions require rigorous, sustained economic and financial reforms. Key examples include removing mandatory equity pre-funding requirements for Foreign Institutional Investors (FII), easing foreign ownership limits, and improving overall market liquidity and transparency.

Vietnam’s promotion takes effect at the market open on 21 September 2026. This paves the way for up to US$6 billion ($8.7 billion) in potential foreign capital inflows across both passive and active allocations.

But there is also a compelling valuation and re-rating argument for looking at the Land of the Blue Dragon.

A nation of entrepreneurs

The macro backdrop is hard to argue with. Vietnam has delivered average GDP growth of 6.6 per cent over 33 years and carries one of the lowest debt-to-GDP ratios in the world, at 36 per cent. Domestic consumption accounts for 55 per cent of national GDP.

The country’s young, entrepreneurial population is urbanising rapidly. They are gravitating toward the industrial parks and infrastructure hubs clustered around Ho Chi Minh City, Hanoi and Da Nang.

This spirit was shaped by the ‘Doi Moi’ reforms of 1986, when the government transferred economic responsibility to the people and effectively created a nation of entrepreneurs, says Mario Timpanaro, director and fund manager at Aquis Capital.

“Vietnam is a geopolitical play. It has a young, ambitious population and it’s strategically well-positioned. During COVID, when Vietnam never closed for business, supply-chain disruption from China pushed a lot of factories to relocate there.”

The numbers are striking: 450 German companies now produce their goods in Vietnam. Lego built a 4,000-employee manufacturing facility there to distribute product across Asia.

Production costs run at roughly 40 per cent of those in southern China. Under new party chief To Lam, the government is now selecting inbound investment more carefully. It is targeting technology and high value-add sectors rather than simply competing on cheap labour.

Timpanaro describes To Lam as his favourite reformer. He points to To Lam’s habit of pointing at stalled projects and demanding to know why they cost more and take longer than planned.

FTSE Russell’s upgrading of Vietnam to ’emerging market’ status has begun to change who is looking at the market. A new major international airport, Long Thanh, is on track to be commercially operational by 2027. The government mobilised two provinces to prioritise labour and materials and clear the bottlenecks.

A different kind of Vietnam exposure

Aquis Asset Management is headquartered in Zurich and regulated under the Swiss Financial Market Supervisory Authority (FINMA). The firm manages approximately US$530 million ($768 million), with its flagship Lumen Vietnam Fund accounting for around US$465 million ($674 million).

Nine people sit in Zurich; 14 are based in Vietnam. The research function is kept deliberately separate from portfolio construction to eliminate conflicts of interest.

The fund’s universe starts with Vietnam’s 1,600 listed companies. These are filtered through an Article 8 ESG screen, one of the first funds anywhere to carry the Swiss sustainability label, down to about 100 eligible names, then to the 60 companies the team actively covers. The portfolio currently holds 41 positions.

Beyond the benchmark

What distinguishes Lumen from most Vietnam vehicles is its deliberate departure from the index. The Vietnamese benchmark is heavily distorted: Vingroup-related stocks alone account for 28 per cent of its weight, with three names having rallied 780 per cent in the past year.

“The index is high, but most stocks are still trading at depressed levels,” Timpanaro says.

He adds, “excluding the Vingroup stocks, the broader market is trading at 12.5 times earnings while delivering earnings-per-share (EPS) growth of roughly 15 to 16 per cent this year. Based on expected 2027 earnings, that multiple falls to around 11 times.”

Rather than mirroring the benchmark’s sector concentration, Lumen maintains a broadly diversified portfolio. The investment philosophy is built on the belief that a healthy and sustainably growing economy should generate earnings growth across a wide range of industries, rather than relying on one or two dominant sectors.

As a result, says Timpanaro, “the portfolio is positioned to capture opportunities across multiple structural growth themes instead of concentrating in the benchmark’s largest sector weights.” For a fund that has never managed against a benchmark, that is precisely the point.

Timpanaro says the ESG integration runs “from the very first step” in the investment process. “We check the ESG qualification first. If a company doesn’t qualify, we exclude it from the watch list; we prefer to choose suitable companies at the beginning rather than invest and then try to change the management team,” he says. “If the ‘G’ is good, the ‘E’ and the ‘S’ come with it, automatically.”

The re-rating case

The valuation argument is central to Lumen Vietnam Fund’s pitch. Compared with a few countries in Asia, Vietnam still trades at a meaningful valuation discount.

While differences in market size, liquidity and investor composition justify some variation in valuation multiples, Timpanaro says the current discount “appears disproportionately wide given Vietnam’s growth outlook and improving market fundamentals.”

Lumen is not arguing that Vietnam should converge to India’s premium valuation or China‘s current multiple. Instead, it sees below-historical valuation, strong structural growth and ongoing market reforms as the foundation for a gradual re-rating.

The driver is simple: investors are increasingly recognising Vietnam’s long-term earnings potential.

For Australian investors, Lumen Vietnam positions its fund as a satellite allocation to a global weighting. The fund offers low correlation to the S&P 500, Euro Stoxx 600, Nikkei and the main China indices. It also provides exposure to a high-GDP growth story, one that is easy to articulate and increasingly underpinned by institutional capital flows following the FTSE upgrade.

Process and performance

Since inception in February 2012, the fund has returned 10.4 per cent a year net in US dollar terms, with annualised volatility of 19.9 per cent. That performance spans COVID, two ongoing wars and a global energy crisis.

Cash management is an active tool. The mandate permits up to 49 per cent cash, though it has never been taken above 20 per cent. The team deployed all available cash during the Trump tariff shock of April 2025, when the market fell as much as 70 per cent at its worst. It has since taken profits as stocks recovered.

“Buying, you can do at any moment,” says Timpanaro. “Selling is the real art.”

Lumen Vietnam Fund recently visited Australia to meet with potential allocators. The team is looking to broaden its Australian investor base, bringing the same diversification argument it has successfully put to family offices and institutional investors in Europe and Singapore.

“If you’re looking for real growth,” Timpanaro says, “it’s happening in that part of the world.”