Investing in a higher-rate environment and opportunities to ride the late-2026 market wave

Entering the era of money no longer cheap, pressured by rising deposit costs and global geopolitical risks, the task of allocating capital is more challenging than ever. Experts from Dragon Capital Vietnam offer a hopeful perspective, anchored by solid macro fundamentals, as Vietnam’s economy not only withstands headwinds but is building momentum, ready to seize growth from the FTSE market upgrade expected in the second half of this year.

Geopolitical conflict and the energy puzzle

At the Q1 2026 Investor Day on April 7, Mr Dang Thanh Tung, Head of Corporate Transactions at Dragon Capital Vietnam, said the US-Iran conflict has pushed crude oil prices to around $100-$110 per barrel, compared with about $70 before the conflict. This raises concerns about potential energy supply chain disruptions, including shortages of gasoline, natural gas, and fertilizers.

Mr Tung noted, however, that Vietnam’s economy is showing resilience and stability better than many other countries. He attributed this confidence to Vietnam’s diversified energy supply from partners outside the Middle East, including Japan, Korea, and Singapore.

He also said proactive negotiations by the Government and PetroVietnam have helped the Nghi Son refinery secure enough crude oil to operate optimally at least until the end of May 2026. To counter inflationary pressure from higher fuel prices, the Government activated the Fuel Stabilization Fund and used windfall revenue to supplement it, helping curb price increases.

Mr Tung acknowledged real risks if oil prices remain elevated for 9-12 months. In that scenario, inflation could rise toward 4.5-5% and GDP growth could slow by about 0.5-1 percentage point. Even so, the inflation level would still fall within the government’s target band, and if GDP were trimmed by 1-1.5 percentage points, growth of 8.5-9% would remain.

Growth targets, policy support, and fiscal tools

Because of this foundation, the Government remains committed to two-digit GDP growth for 2026. The objective builds on 2025 growth of 8%, record disbursement of public investment, attraction of foreign direct investment, and a trade surplus exceeding $900 billion.

While policy space for monetary policy is narrowing due to higher rates, Mr Tung said the Government still has fiscal tools, including accelerating public investment and using tax cuts or subsidies. He highlighted the acceleration of Resolution 68 (supporting the private sector) and Resolution 79 (supporting the state sector) as key drivers to strengthen internal resilience and reduce reliance on external factors.

Currency and interest-rate dynamics

On monetary policy, Mr Tung said expectations for Fed rate cuts in 2026 have largely faded due to renewed global inflation. This keeps the USD as a safe haven, putting pressure on the VND exchange rate. Combined with Vietnam’s oil import exposure at elevated prices, the dong faces depreciation risk.

Despite this, Mr Tung expects only mild depreciation of about 1-3%, citing solid macro fundamentals and dampening pressures from gold or digital assets.

Regarding interest rates, he said a broad-based rate hike since Q3 2025 is a natural consequence after a period of ultra-low rates used to stimulate activity. Although current rates are on par with 2022 levels, the economy is structurally different now: the PMI has expanded for eight consecutive months, and business optimism suggests the economy can absorb these rates and continue to grow.

He added that the State Bank is expected to manage rates prudently, keeping them steady and moderating if geopolitical tensions in the Middle East ease.

Interbank liquidity shift and the rise in deposit rates

To explain why bank deposit rates have risen quickly in early 2026, Mr Diệp Quốc Khang, Senior Executive Vice President at Dragon Capital Vietnam, pointed to changes in interbank liquidity. He said that in prior years, Vietnam’s financial market maintained relatively low interest rates with ample interbank liquidity, allowing banks to rely more on cheap interbank funds for mid- and long-term lending rather than retail deposits.

More recently, excess liquidity in the interbank market has become less abundant. As cheap funds from peer banks shrink, banks need alternative funding to sustain credit activity, leading them to refocus on traditional deposits from households and businesses.

To balance tenors safely and avoid risk from using short-term funds for long-term lending, banks are seeking stable capital. As a result, they are raising deposit rates broadly and concentrating on longer-tenor deposits; Mr Khang noted that six-month deposits have seen the sharpest increases among all tenors.

In short, the decline of cheap interbank liquidity has pushed banks into a rate-hike race to cover funding gaps for longer-term lending.

FTSE upgrade outlook and market strategy

Mr Dang Thanh Tung said the clearest market signal in 2026 is the FTSE Emerging Market status upgrade, expected in September. He expects passive foreign inflows to strengthen into Vietnam as a result. Ahead of the event, active funds have already begun aggregating based on attractive valuations of Vietnamese equities.

He also referenced foreign trading flows: while foreigners recorded net selling in March due to geopolitical risk concerns, data on purchases in the first two months indicates foreign interest in Vietnam remains robust.

Mr Tung said that when cheap money is no longer available but the economy continues to grow sustainably, the stock market reflects growth most directly. He recommended that investors allocate a portion of assets to equities because this is the channel that benefits directly and most significantly.

He specifically favored the Banking sector, citing steady growth, and the Consumer sector, citing direct exposure to a rising economy.

Looking further ahead, he described the FTSE upgrade as a stepping stone toward larger goals, including potential upgrades to MSCI and achieving Investment Grade by 2030, which he said could open a growth cycle for Vietnam’s stock market.