Vietnam’s upgraded status – how much more upside is possible?

• Vietnam is set to be upgraded to Emerging Market status by FTSE Russell, effective September 2026

• This could unlock potential foreign inflows of up to US$10 billion

• Vietnam’s stock market is up more than 30 percent YTD, and there remains scope for sustained market development

Aligned with Asian peers

Vietnam’s long-awaited reclassification from Frontier to Emerging Market status by FTSE Russell marks a major milestone in the country’s capital market development. Having been on FTSE’s watchlist since 2018, this upgrade puts Vietnam in the same market category as China, India, and Indonesia, thereby enhancing its visibility and appeal to global investors.

We expect this promotion to unlock substantial foreign investment, particularly from passive funds that were previously restricted from accessing locally listed equities due to Vietnam’s frontier market designation. The upgrade also reflects FTSE’s confidence in Vietnam’s ongoing market reforms and underscores growing recognition of the country’s steady progress toward greater openness and transparency.

The reclassification will take effect in September 2026, pending a confirmation review in March 2026. We believe the remaining issues under review are likely to be resolved ahead of this interim milestone.

Foreign inflows expected to rise

According to estimates by leading international brokers, Vietnam’s market upgrade could draw in foreign net flows of US$6 - 8 billion, with upside potential of up to US$10 billion in a bullish scenario. These inflows are expected to be phased across multiple tranches, with active funds likely to lead the trend, as observed in previous upgrade cases such as Qatar and Kuwait.

• Active funds: Historically, 30 – 50 percent of total expected inflows tend to enter early, driven by optimism following upgrade announcements. For Vietnam, the World Bank projects US$5 billion in short-term inflows, including US$1–2 billion from active investors seeking growth opportunities. Precedents from comparable markets suggest that foreign inflows during the “pre-upgrade” phase typically rise gradually and selectively, often accompanied by heightened volatility rather than an immediate surge. In Kuwait’s case, foreign inflows increased 20 – 30 percent in the 6 to 12 months ahead of its upgrade, supported by similar market reforms. Vietnam may follow a similar trajectory, with active investors entering early and passive flows stabilising the market post-inclusion.

• Passive funds: The remaining 50 – 70 percent of inflows are likely to wait until formal inclusion in September 2026 as index-tracking funds prefer to avoid pre-implementation risks. However, positive developments such as the March 2026 interim review could prompt a short-term 10 – 20 percent spike in foreign investment activity.

A further boost for the stock market

Vietnam’s stock market has been rallying since early this year, with the benchmark VN-Index up more than 30 percent year-to-date. This performance has been supported by a solid economic outlook, a high GDP growth target, and robust participation from domestic retail investors, driven by growing confidence in the government’s shift toward strengthening the private sector and implementing supportive policies.

Vietnam’s long-awaited upgrade to Emerging Market status has further reinforced investor sentiment, reflecting its continued efforts to align with international standards and practices. Following the announcement, the VN-Index surged nearly 3 percent in early trade, before paring gains later in the session.

Importantly, we think Vietnam’s rally is not a one-off reaction to the upgrade, but a reflection of deeper market improvements. Therefore, while some short-term profit-taking may occur as investors react to the news, bargain-hunting demand is expected to absorb selling pressure. There is potential therefore for the VN-Index to reach higher levels over the medium term and for market development to be sustained.

Investment opportunities

Looking ahead, we maintain a constructive medium to long-term view on Vietnam’s market. The investment themes we favour remain consistent following Vietnam’s market upgrade. We continue to see strong potential in Banking, Financial Services (Brokerage), and Retail, which are key beneficiaries of the ample liquidity supported by Vietnam’s low interest rate environment and strong credit expansion, alongside robust GDP growth momentum. These sectors are further supported by ongoing regulatory reforms, including initiatives to establish International Financial Centers (IFCs) in Ho Chi Minh City and Da Nang, as well as the development of Gold and Digital Asset exchange platforms, which aim to deepen market sophistication and attract broader investor participation.

In addition, we think stocks in the Construction Materials sector could benefit from the government’s public investment drive, with multiple large-scale infrastructure projects being launched or under construction. These sectors are expected to capture growth opportunities in the next phase of Vietnam’s market development.

We remain underweight on Energy, Utilities, and export-oriented sectors, reflecting our cautious stance amid several headwinds. The key near-term risk lies in foreign exchange volatility, though this is expected to ease toward year-end, in line with expectations of further rate cuts by the US Federal Reserve.

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