After upgrade, how will foreign capital flow into Vietnam?

Domestic large investment funds are currently looking at opportunities to engage with international financial institutions and rating agencies. After Vietnam passed the FTSE Russell evaluation, the focus has shifted to how foreign investors’ risk appetite and sentiment may change, and whether capital deployment could accelerate in the near term.

Market reaction to upgrade-related news

At the seminar “Capturing Opportunities Amid Market Volatility” organized by KB Vietnam Securities (KBSV), Mr. Vo Nguyen Khoa Tuan, Senior Director of Equity at Dragon Capital, said that following upgrade-related news, the VN-Index rose by more than 4% in the session discussed. Although foreign investors still recorded net selling that day, he noted that the selling pressure had largely been anticipated in advance and was linked to international factors, including delays in US policy.

Recent sessions also suggest improving foreign participation, with buying orders increasing and selling pressure easing. In one session, foreign investors shifted to net buyers by about 800 billion dong, which—while not large—was described as a positive signal.

Capital allocation expectations from FTSE Russell

With Vietnam officially upgraded, FTSE Russell is estimated to allocate more than USD 450 million, split into four tranches. Passive tracking funds could invest more, with a total size estimated at about USD 1–5 billion depending on fund size. In addition, active funds may participate when Vietnam meets Emerging Market standards.

However, the expectation of large inflows immediately is not guaranteed. Foreign selling has continued, partly due to fund rebalancing and profit-taking. Even so, the Vietnamese market has continued to trend upward, with domestic fundamentals playing a key role.

How tranche disbursement may affect market stability

A key point raised is that tranche-based disbursement by funds could help the market sustain its uptrend more steadily, rather than experiencing a “hot surge” followed by sharp corrections. If funds are distributed from September this year to mid-next year, the market may gain a more durable growth base.

Upgrade impact: easing over time and short-term risks

From a thematic investment perspective, Mr. Nguyen Xuan Binh, Director of Analysis at KBSV, said the upgrade story is not new and has been discussed for years, meaning market effects may gradually ease. Since FTSE Russell added Vietnam to the watchlist for an upgrade, the market has already partially priced in expectations.

He cited experience from markets such as Saudi Arabia and Qatar, where markets often rally before the upgrade but may adjust after official disclosure. Investors, therefore, should be mindful of the risk of “the news is sold” in the short term.

Passive vs. active flows and potential near-term correction

Foreign capital can be divided into two groups: passive funds that invest based on index weight, and active funds that may front-run the upgrade. The active group typically participates earlier, which can create a positive early market effect. After the event, the market may see a short-term correction before returning to a positive medium-term trend supported by fundamentals.

Long-term valuation and possible rebalancing pressure

According to Mr. Tran Duc Anh, Macro Economics & Market Strategy Director at KBSV, in the long term, an upgrade can be compared to moving from a 2-star hotel to a 3-star hotel, indicating improved market valuation—though the reflection in reality may take time.

He also highlighted that Vietnam could face selling pressure from frontier funds as they rebalance, potentially offsetting purchases from the Newly Emerging group. As a result, net cash flow may remain uncertain.

Suggested approach for investors

For investors, the seminar suggested a strategy of participating before the upgrade narrative peaks, while proactively taking profits when the event occurs to help protect investment gains.