FTSE Russell upgrade lifts Vietnam’s stock market to emerging secondary status, fueling expectations of capital inflows

The wave of foreign capital following the upgrade is expected to provide a strong boost to Vietnam’s stock market. However, this exuberance could cloud investors’ judgment if they do not keep a cool head.

The upgrade of Vietnam’s stock market by FTSE Russell to an emerging secondary market opens up many hopes for fund flows and investment opportunities.

Planned index rebalancing and expected inflows

According to FTSE Russell’s announcement, index funds will purchase Vietnamese stocks in four tranches: September 21, 2026 (10%), March 22, 2027 (20%), June 21, 2027 (35%), and September 20, 2027 (35%).

Vietnam may initially account for about 0.35–0.40% of the FTSE Emerging All Cap index, corresponding to passive inflows estimated at 0.8–1.5 billion USD. Active funds could be three to four times higher. While some funds may be disbursed early, MSVN estimates that total foreign capital accumulated over time could reach 6–8 billion USD, supporting a liquidity re-rating cycle with a structural character, similar to historical experiences of markets upgraded by FTSE.

Bloomberg statistics cited in the article show that most markets experience strong growth in foreign capital after official upgrades, regardless of whether the criteria are FTSE or MSCI. The data indicate that capital inflows often rise five to seven times the pre-upgrade average.

Range of potential capital and liquidity outlook

KBSV Securities believes the upgrade will trigger a shift of large-scale capital from index funds and global active funds into Vietnam.

Based on FTSE Russell’s scenario analyses, total potential capital inflows are expected to reach 3–9 billion USD, corresponding to an estimated weight of 0.3% to 1.1% in the FTSE Emerging All Cap index.

Separately, BSC Securities expects Vietnam’s stock market liquidity to average 1.3–2.1 billion USD per session over 2026–2030 if the upgrade completes.

The article also notes that in 2024, the World Bank said successful upgrading could attract new capital of up to 25 billion USD.

Potential benefits and “hidden traps” for investors

Large foreign flows can play an important role in driving stock market growth. When liquidity is abundant, stock prices tend to rise faster, with effects that can spread across many sectors. Institutional investors, funds, and foreign capital can also bring stability and confidence, attracting additional retail participation.

However, the article highlights several risks that can emerge alongside strong inflows:

• Psychological traps: As the market keeps rising, investors may develop excessive enthusiasm and buy without carefully weighing company fundamentals. The “buy at the top” phenomenon can occur when stock prices have already priced in overly optimistic expectations.
• Concentration and dispersion: Large capital may not distribute evenly, concentrating in a few sectors or leading stocks. Investors chasing trends without a clear strategy can get stuck in “hot” stocks that lack solid fundamentals.
• Cycle and reversal risk: Large capital can be cyclical. If macro conditions shift—such as rising interest rates or inflation pressure—foreign money may exit quickly, leading to sharp corrections and potentially large losses for unprepared investors.

Beyond the upgrade story, foreign capital is also influenced by macroeconomic conditions and global geopolitics. In periods of turmoil, capital tends to move from riskier markets to safer assets such as gold, currencies, or larger markets. This can reduce the weight of higher-risk, more volatile markets, including Vietnam and some Southeast Asian markets. The upgrade may change how international investors view and monitor Vietnam’s market.

What investors should do

Keeping a “cool head” is presented as a guiding principle for investors. Mr. Nguyễn Trọng Đình Tâm, Director of the Scientific Investment Advisory KHCN Unit at Thiên Việt (TVS), says the upgrade is positive in the long run, but it does not mean foreign money will arrive immediately. He notes that beyond the upgrade’s effective date from September 2026, the pace of deployment by active funds depends on macro variables such as geopolitical risk, exchange-rate trends, and the global economic outlook.

TVS emphasizes that investors should not expect multi-billion-dollar inflows to come quickly. “To achieve effective profits in the market, what matters most is holding a portfolio of strong, leading stocks and maintaining a positive trend,” the TVS expert argues.

Mr. Nguyễn Đức Khang, Head of Analysis at PineTree Securities, describes the upgrade as the market “donning a new, improved outfit.” However, he cautions that if internal conditions—such as liquidity, the interest-rate environment, earnings growth, and broader market diversification—do not genuinely improve, the market may not strengthen immediately.

PineTree also stresses that investors should avoid excessive expectations that the upgrade will trigger an immediate reversal, given that global money continues to favor safety in developed markets.

The article further notes that pressure on outflows from foreign funds is more evident than expected. Many large foreign funds with long investment histories in Vietnam are still experiencing capital outflows as global flows shift toward higher yields and safer markets. As a result, the article concludes that expecting an immediate rebound of foreign capital into Vietnam’s stock market at this time may not be realistic.