Market Movement – MAY 2026: LEVERAGING DOMESTIC RESILIENCE AGAINST EXTERNAL HEADWINDS

The Iran conflict has entered its third month amidst protracted ceasefire negotiations. Meanwhiles, elevated oil prices are increasingly transmitting to production costs and consumer prices, accelerating global inflationary pressures.

Market consensus regarding near-term monetary accommodation by major central banks, including the US Federal Reserve and the ECB, has shifted toward potential rate hikes by year-end to anchor inflation. However, policymakers must balance this hawkish trajectory against deteriorating consumer sentiment, AI-driven structural labor displacement, and tariff-induced pressure on manufacturing output.

On the other hand, structural tailwinds in artificial intelligence continue to drive capital concentration into technology equities and AI infrastructure ecosystems. This thematic rotation has propelled equity indices in the US, Japan, South Korea, and Taiwan to record highs, diverging from broader inflation-driven market anxieties.

Domestically, the Middle East conflict has manifested in Vietnam’s macroeconomic data over the past two months. Manufacturing output moderated amid rising input costs, while domestic consumption exhibited a gradual recovery supported by international tourism inflows.

To secure the minimum 10% GDP growth target for FY2026, the government implemented regulatory easing, cutting administrative procedures and business conditions to incentivize market entry and capital investment, alongside streamlining frameworks for the science and technology sector. Combined with remaining public investment disbursement capacity and export dynamics for the remainder of FY2026, these policy measures position the economy to achieve a 10%–11% GDP expansion in subsequent quarters.

VN-Index reached a new high, closing at 1,925 points on May 14. This performance was underpinned by market-wide 1Q26 profit after tax (PAT) growth of nearly +40% YoY. Valuation metrics for large-cap equities remain aligned with their five-year historical average, whereas mid-cap and small-cap multiples have compressed to a -1 standard deviation level. This valuation dispersion improves forward return expectations, despite cautious trading sentiment regarding global macroeconomic uncertainties.

Current valuations however face potential downward pressure. Vietnam government bond yields are sustaining at elevated levels comparable to 2022, while the interest rate environment show no immediate signs of moderation.

The recommended portfolio strategy maintains an adequate cash allocation to hedge against geopolitical and inflationary risks. Capital deployment should remain selective, targeting sectors with definitive structural catalysts: Banks: Focus on cyclical drivers, with a preference for state-owned institutions; Oil & Gas, Fertilizers and Seaports: Direct beneficiaries of elevated energy prices and rising freight rates linked to the Middle East conflict; Basic Resources: Leveraged to accelerated public investment disbursement.