CICC has released a research report indicating that FTSE Russell announced the results of its September semi-annual index review on August 21, 2026, with 27 Vietnamese stocks selected for inclusion in the FTSE Global Equity Index Series. Vietnam will be reclassified from a Frontier market to a Secondary Emerging market effective from the market open on September 21. According to the official schedule, the consultation period for the list runs until September 4, with rebalancing trades expected to be executed around the September 18 window and taking effect on September 21. The firm estimates this upgrade could attract approximately $1.9-2.0 billion in passive fund inflows.
Core Event and Passive Inflow Projections
The latest review list has expanded from the 23 names in the April indicative list to 27, comprising 3 large-cap, 3 mid-cap, and 21 small-cap stocks. Among these, 6 large and mid-cap stocks are also included in the FTSE All-World Index, making Vietnam the 49th market covered by that index. Together with approximately 90 micro-cap stocks, a total of 117 Vietnamese stocks will enter the GEIS framework. Following the announcement, a Vice Chairman of the State Securities Commission of Vietnam indicated that Vietnam's weight in the FTSE Emerging Markets Index series could rise to 0.49%, surpassing FTSE's preliminary estimate of 0.329% based on end-March data. This upward revision, driven by the expanded list and market capitalization changes, suggests the actual investable scale and capital inflows may exceed earlier market expectations.
Inclusion Mechanism and Flow Calculations
The inclusion framework requires eligible stocks to meet several criteria: free float above 5%, foreign ownership room of at least 20% calculated as (foreign ownership limit minus current foreign holdings) divided by the limit, monthly median turnover of no less than 0.05% for at least 10 of the past 12 months, and passing size-based screening. To mitigate liquidity shocks, investable weights will be phased in over four tranches: 10% on September 21, 2026, followed by 20%, 35%, and 35% on March 22, June 21, and September 20, 2027 respectively, achieving full inclusion by September 2027. The removal from the Frontier index will occur in a single step this September, but given the limited funds tracking frontier indices, the impact is considered manageable.
Passive funds tracking FTSE indices are largely concentrated in Vanguard products, with related funds managing over $1.1 trillion in total assets. The Vanguard FTSE Emerging Markets ETF alone has approximately $163.3 billion in assets as of June 30. Based on the 0.49% weight, CICC calculates total passive inflows of roughly $1.9-2.0 billion, with the initial 10% tranche representing about $190-200 million. The World Bank projects near-term portfolio inflows of $3-5 billion, potentially reaching $25 billion cumulatively by 2030, with active fund flows typically several times larger than passive flows. CICC expects passive funds to build positions around each tranche's effective date, while active funds often position ahead of time. Vietnam's current valuation remains attractive, with the VN Index trading at 12.6 times forward earnings as of August 24, 2026, according to Bloomberg consensus estimates.
Large-cap and high-free-float stocks are likely to benefit first. Among the 27 selected stocks, there are 8 banks, 7 securities firms, 4 Vingroup-affiliated companies, and 3 food and beverage companies, alongside steel, information technology, and aviation sectors. The 6 large and mid-cap stocks account for approximately two-thirds of the total market capitalization of the 27 names, highlighting significant concentration at the top. CICC expects passive inflows to concentrate toward these larger, more liquid names, with final investable weights pending confirmation in FTSE's formal review documents.
Additional Capital Market Catalysts
Beyond the FTSE upgrade, several structural reforms are progressing. Following the KRX trading system launch in May 2025, Vietnam's Ministry of Finance issued Notice 139/2025/TT-BTC requiring all 299 stocks listed on the Hanoi Stock Exchange to migrate to the Ho Chi Minh City Stock Exchange by end-2026. This consolidation will make HOSE the sole equity trading venue, with HNX focusing on bonds and derivatives. A central counterparty clearing system is targeted for the first quarter of 2027. CICC believes these changes will expand the investable universe and improve liquidity, laying the groundwork for further weight increases.
The Global Broker model, introduced through Notice 08/2026/TT-BTC in February 2026, allows foreign institutions to place orders directly through global brokers without opening local trading accounts, with settlement responsibilities borne by contracted local brokers. SSI and US-based Virtu Financial completed the first deployment on June 2. This model is expected to substantially lower participation barriers and transaction frictions for foreign investors, providing ongoing channel support for inflows after the upgrade.
Accelerated state divestment is another key theme. The State Capital Investment Corporation approved a 2026-2030 restructuring plan on August 14, targeting full exit from 66 held companies. With state ownership concentrated and free float relatively small across listed companies, foreign ownership stands at approximately 13.3% market-wide, near historical lows. CICC sees systematic divestment, mixed-ownership reforms, and dilution as forces that will structurally raise free float and foreign investable capacity, potentially creating a positive cycle of expanding float, rising index weights, and incremental inflows.
An MSCI upgrade could follow. MSCI's June 2026 market access review acknowledged Vietnam's progress on the Global Broker model and CCP implementation, though the country was not yet added to the watch list. CICC projects Vietnam could enter the MSCI watch list by mid-2027 once the CCP launches and exchange consolidation completes, providing the next catalyst after FTSE. Given that funds tracking MSCI Emerging Markets indices are several times larger than those tracking FTSE, the medium-to-long-term upside potential from a potential MSCI inclusion appears substantial.
Investment Strategy: Focus on High-Correlation ETFs
For overseas exposure, Vanguard's VWO and other FTSE emerging market funds are the direct execution vehicles for this round of passive inflows. Xtrackers FTSE Vietnam and Fubon FTSE Vietnam ETFs directly track FTSE Vietnam index series, while VanEck VNM and other single-market ETFs tracking non-FTSE indices may benefit indirectly through portfolio overlap. Among domestic Vietnamese ETFs, E1VFVN30 shows high overlap with the 27-name inclusion list, FUEVFVND focuses on stocks hitting foreign ownership limits which aligns well with post-upgrade foreign buying logic, and FUESSVFL concentrates on the financial sector that dominates the inclusion list with its 8 banks and 7 securities firms. CICC recommends these domestic products as portfolio tools to participate in the upgrade rally, while cautioning investors to monitor premium/discount and liquidity risks.
Key Risks
Potential risks include: 1) the inclusion process or index weights falling short of expectations; 2) foreign inflows underperforming projections; 3) short-term profit-taking; and 4) exchange rate volatility and global liquidity tightening.
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