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Market Insights June 2026

Inflation continues to escalate, trade deficit widens in May

IN BRIE

• Industrial production and trade continued to grow positively in May, with IIP up 8.79% YoY and PMI rising to 52.8, yet the trade deficit hit USD 5.21 billion, the highest of the year, driven by a sharp surge in imports of raw materials and energy.
• Public investment and FDI remain the two main pillars of the economy, with May public investment disbursement reaching a 4-year high and cumulative 5-month FDI disbursement setting a new record of USD 9.75 billion. However, real consumption continues to decelerate as inflation escalates, May CPI reached 5.60% YoY, the highest since January 2020, posing a significant challenge for full-year average CPI to stay within the 4.5% target.

• VN-Index edged up only +0.5% for the month after hitting a peak of 1,927.9 points before correcting, amid continued foreign net selling of VND 12,000 billion and cooling liquidity compared to March. Valuation at P/E ~15.2x remains below the historical average, but interest rate and inflation pressures limit short-term valuation expansion, the FTSE upgrade review in September 2026 remains the most important medium-term investment thesis for the market.

The IIP rose 8.79% YoY and 3.27% month-over-month in May 2026, bringing the five-month cumulative growth to 9.08% YoY. Although IIP growth slowed compared to the prior month, May's PMI unexpectedly climbed to 52.8. Meanwhile, export turnover in May 2026 reached USD 46.93 billion (+18.2% YoY) and imports came in at USD 52.14 billion (+33.8% YoY), both maintaining positive growth. That said, the trade deficit of USD 5.21 billion was the highest of the year. The deficit reflects demand for raw materials and intermediate goods to support production, along with persistently high energy import costs, crude oil imports in May doubled year-over-year. Five consecutive months of widening deficit could put structural pressure on foreign currency supply and the VND. A trade surplus could return if stockpiled raw material imports gradually convert into exports; additionally, if the U.S. - Iran ceasefire deal is confirmed, oil prices and freight costs could cool down. However, if these scenarios play out slower than expected, exchange rate pressure is likely to extend through the rest of 2026.

Public investment continues to play an important role in driving economic growth. Disbursement in May 2026 reached VND 75,075 billion, the highest May figure in the past four years and a sharp jump from April's VND (23,498 billion). The five-month cumulative total came in at VND 219,358 billion, up 18.9% YoY. The strong acceleration in May shows that ministries and local governments are stepping up disbursement in line with the Government's directives. Public investment remains a key buffer for growth amid the ongoing trade deficit, but is also adding upward price pressure on construction materials.

Five-month cumulative FDI disbursement reached USD 9.75 billion, up 9.6% YoY, setting a new high for this period. In May alone, disbursed FDI came in at USD 2.35 billion, while newly registered and supplemental FDI reached USD 5.34 billion (+32.7% YoY). The steady FDI inflow continues to be an important source of foreign currency support, partly offsetting the trade deficit. Large projects registered in Q1, LNG Quynh Lap and Samsung Thai Nguyen are expected to keep disbursement on track in the coming quarters, supporting the medium term growth outlook for the manufacturing sector.

Consumption is slowing as inflation picks up. Total retail sales in May 2026 reached VND 647,057 billion, up 11.8% YoY, with the five-month cumulative growth at 11.2% YoY. However, real growth after stripping out price effects slipped further to 6.1% YoY for the five months, down from 6.3% in 4M26 and 7.0% in Q1, pointing to a clear softening trend in actual consumption as inflation rises. On tourism, international arrivals reached 1.78 million in May (+16.5% YoY), slowing from April’s 22.8% pace as the travel season enters its quieter months.

Inflation remains elevated. Headline CPI in May 2026 rose 5.60% YoY and 0.29% month-over-month, the highest level since January 2020, bringing the five-month average to 4.32% YoY. Housing and construction materials continued to lead, climbing 8.19% YoY, reflecting still-strong demand for building materials driven by public investment. Core inflation moved only 0.34% month-over-month and 4.67% YoY, barely changed from April's 4.66%, suggesting that price pressures are still largely concentrated in energy and materials and have not yet broadly passed through to household consumer demand. However, with the five-month average already at 4.32%, keeping the full-year CPI average within the 4.5% target will require the remaining months to hold below 4.6% YoY, a meaningful challenge if global energy prices remain sticky.

Money Market: Banking system liquidity continued to stabilize in May following the period of stress from March. The State Bank of Vietnam (SBV) injected a total of VND 250,480 billion via term purchase operations during the month, with the overnight rate trading in the 5.0–7.0% range — well below the peak of 11.4% at end-March and the 8.8–9.0% range seen in early April. Toward month-end, the overnight rate edged up to 6.97–7.80%, reflecting typical end-of-period liquidity demand. On the deposit rate front, following commercial banks' commitments at the April 9 meeting with the SBV Governor, some banks made modest cuts to short-term deposit rates; however, with the five-month average CPI already at 4.32%, the room for the SBV to cut policy rates remains limited. On the exchange rate front, the USD/VND rate on the interbank market stayed stable throughout May, trading in the 26,085–26,395 range. This stability reflects the SBV's flexible management approach, supported by USD 2.35 billion in FDI disbursements during the month providing meaningful foreign currency supply. Looking ahead, risks including rising oil prices, a prolonged trade deficit, or a slowdown in FDI inflows could put depreciation pressure on the VND.

Stock Market: The VN-Index opened May at 1,854.1 points, rallied to an intra-month high of 1,927.9 points on May 18 (+4.0% from the month's open) before pulling back to close at 1,863.5 points — up a modest +0.5% month-over-month and +4.4% year-to-date. The VN30 underperformed the broader index at -1.3% MoM, indicating that large-cap stocks faced more pressure during the month.

Trading activity cooled noticeably, with average daily trading volume on HOSE coming in at roughly 713 million shares per session. Total matched order value on HOSE for the month reached VND 410,733 billion — roughly in line with April's VND 408,076 billion but down 31% from March. Notably, foreign investors continued their net selling streak, offloading a net VND 12 trillion in May, extending a trend that has run since the start of the year. YTD 2026, foreign investors have net withdrawn USD 2,373 million, in line with the broader regional trend seen in Indonesia (-USD 3,155 million YTD) and the Philippines (-USD 223 million YTD).

At the sector level, Energy led the market with a +51.3% YTD gain driven by rising oil prices. Real Estate posted +18.0% YTD, largely carried by Vingroup's strong Q1 run. Financials held steady at +1.3% YTD. On the other end, Information Technology was the worst performer at -23.5% YTD, weighed down by the global tech valuation correction.

On valuation, the VN-Index's trailing 12-month P/E stands at approximately 15.2x — still below its 5-year average of around 17x. However, rising interest rate and inflation pressures are likely to limit meaningful re-rating in the near term. The key medium-term investment thesis remains the September 2026 FTSE review; if Vietnam is upgraded from Frontier to Emerging Market status, an estimated USD 1.5–2.0 billion in passive capital is expected to flow into the market within six months of the decision.