Vietnam: in step with structural growth

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Some investors approach Vietnam the way many first-timers approach crossing the street in Saigon (Ho Chi Minh City) – hesitant, wide-eyed, and waiting for the perfect break in traffic that never quite arrives. But as any local will tell you, the way across is to step forward with calm confidence and steady intent. This, to some extent, mirrors how we think about investing in Vietnam: trust your process and be aware of, but consciously block out the noise around you to focus on your destination.

While the headlines give you corruption scandals, new tariffs, or short-term volatility, there is clear evidence to show that the long-term, structural story unfolding on the ground is very much intact and perhaps one of the most exciting in the world. As I’m sure you know by now, we look for growing businesses riding structural trends, run by capable people, in markets that are transforming. In Vietnam, that’s exactly what we’re finding.

Vietnam’s export-led engine

Vietnam has spent the past two decades quietly becoming one of the world’s most competitive export hubs. It focuses on exactly what global supply chains need: high-volume, cost-efficient manufacturing across electronics, apparel and increasingly, value-added tech components. It has built deep infrastructure and expertise in this space, and as a result, multinationals have been entrenching Vietnam in their supply chains. For instance, it is now responsible for about half of Samsung’s global smartphone production. This has meant that the country’s export engine has delivered around 10 per cent per annum growth for much of the last decade, before stalling in 2023. Encouragingly, with significant reforms now underway, we’re already seeing forecasts return to long-term averages.

Tariffs: noise, not narrative

Of course, the biggest overhang for exporters is the announcement (courtesy of Truth Social) of new US tariffs. However, there’s an argument to be made that there’s more stability now that Vietnam has managed to avoid the previously threatened 46 per cent worst-case scenario and faces a more manageable adjustment.

What we know is that a 20 per cent tariff is being proposed on most exports to the US, and a higher 40 per cent rate is targeted at goods deemed ‘trans-shipped’, i.e. those thought to originate in China but rerouted via Vietnam. This is higher than the current 10 per cent, but far less severe than the 46 per cent initially suggested.

We can’t draw any conclusions yet, but the key questions remain, particularly around how Washington intends to define and enforce ‘trans-shipment’. Until there’s clarity, it’s important not to overreact, especially now that we all know how quickly things can change.

In short, while tariffs may pose a headwind, they are unlikely to derail the longer-term export narrative, especially when viewed through the lens of Vietnam’s broader structural transformation.

Significant reforms backing private sector growth

Before we get into the companies themselves, it’s worth mentioning that the country has been through significant reforms of late. While these have been difficult for investors to work through, we think the resultant outlook is now very positive. The new General Secretary, To Lam, marks a significant change from his predecessor and has cemented his power base through the new infrastructure project approvals, unclogging the property market, restructuring the government to remove bureaucracy and raising credit growth targets.

Simplifying the government structures is not a cosmetic move; it’s about a rapid and effective removal of red tape. Over 100,000 state roles have been eliminated as the government shifts its focus toward backing private sector growth and new infrastructure projects at scale. A case in point: the long-delayed Ho Chi Minh City metro line was previously stalled for many years and has since been fast-tracked under the new leadership and finally opened at the end of 2024. So, the government is investing heavily: from railways to airports, they are focusing on enabling commerce, connectivity and consumption. Here, the private sector will be key to delivering on these initiatives, and local champions in various sectors will emerge.

Asia’s domestic star

Two members of the investment team recently returned from a research trip to Vietnam and were notably upbeat about the strong execution across the companies they met. Some of the changes made already have positive impacts on businesses against this backdrop. Hearing from firms on the ground only reaffirms our positive outlook on Vietnam’s domestic trajectory.

Vietnam is home to a young, urbanising, growing middle-class population that will be digitally fluent and consumption hungry. Vietnam has around 100 million people with a median age of 32, which is young relative to Asian peers. Almost 40 per cent of the population now lives in urban areas, which has doubled since the 1990s. Some estimates suggest that half of the population will be middle class by 2035. For context, this figure was around 13 per cent in 2015.

In Vietnam, we are witnessing a generational shift in spending. Younger Vietnamese are willing to pay a premium for quality, convenience and lifestyle, from food to fashion to tech. With over 70 million internet users and smartphone penetration at over 80 per cent, Vietnam is primed for modern retail. 

As this transition unfolds, one of the clearest themes is the shift from informal to formal consumption (shifting spending from street stalls and open markets to organised chain stores), a trend that directly supports the growth of companies like Mobile World.

Mobile World – leading the formalisation of retail

Mobile World Investment Corporation (MWG) is one of the companies leading this consumption transformation on the ground. We have followed the company for many years, given that our EM team has been investing in Vietnam since 2016 in our Asia ex Japan portfolios. This company is a newer buy for our more concentrated EM portfolios, and it has been held in our EM All Cap portfolios since 2023. While Vietnam sits off-benchmark and remains subject to foreign ownership limits and liquidity constraints, which naturally narrow our investable universe, we continue to find selective opportunities, and our position in MWG is a prime example.

Often described as the “Best Buy plus Walmart” of Vietnam, MWG started out as a mobile phone retailer and has grown into the country’s largest multi-category retail platform spanning smartphones, electronics, groceries, pharmaceuticals and fashion.

Today, MWG operates over 4,000 stores nationwide, and it is the clear leader in mobile phones and home appliances. Its grocery chain, Bach Hoa Xanh, is quickly establishing itself as the most scaled and organised player in a sector still largely dominated by traditional informal markets. What sets MWG apart is not just its reach, but its ability to adapt, leveraging an omnichannel strategy that integrates its physical stores with an increasingly strong digital presence.

The past year has been challenging, with industry-wide oversupply in electronics and softer grocery demand due to the broader economic slowdown. But we see this as a classic capital cycle moment: the fundamentals are intact, competition has weakened, and MWG is positioning itself for a stronger rebound. Its management team has consistently demonstrated the ability to restructure, refocus, and execute with discipline in tough environments.

Looking ahead, the opportunity is clear. As Vietnam’s middle class expands and spending habits evolve, MWG is well placed to deepen its presence and continue leading the retail formalisation trend. In our view, it represents one of the most compelling ways to gain exposure to Vietnam’s domestic transformation – combining scale, innovation, and operational strength in one of Asia’s most exciting economies.

From the sidelines, Vietnam may appear hectic, but the direction of travel is clear. From policy reforms to population dynamics, from capital cycles to consumer shifts, the long-term story remains firmly intact and just like crossing the street in Saigon, we’re choosing to walk into it with conviction. 
 

Risk factors 

The Funds are distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. All information is sourced from Baillie Gifford & Co unless otherwise stated.

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. Currency risk includes the risk that the foreign currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.

For more information about these and other risks of an investment in the Funds, see "Principal Investment Risks" and "Additional Investment Strategies" in the prospectus. There can be no assurance that the Funds will achieve their investment objectives.

This communication was produced and approved in August 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

As at August 2025, Baillie Gifford held Mobile World Investment Corporation. A full list of holdings is available on request and is subject to change.

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