Market upgrade in Vietnam's stock market: opportunities and challenges ahead

At a seminar titled “Seizing opportunities amid volatility” organized by KB Vietnam Securities (KBSV) on April 10, experts said Vietnam’s stock market upgrade by FTSE Russell has meaningful long-term implications, while near-term effects should be viewed with caution for both capital flows and market movements.

Foreign capital flows are hard to predict; long-term re-rating potential

Nguyen Xuan Binh, Head of the Analytics Division at KBSV, said the upgrade story is no longer new, so the positive impact on the market may fade over time. Since September last year—when FTSE Russell placed Vietnam on the watch list for a potential upgrade—much of the market’s expectations had already been reflected in prices.

He noted that upgrade-related market behavior is often cyclical, citing examples such as Qatar and Saudi Arabia: markets tend to rally ahead of the upgrade but often correct after official information is released. For Vietnam, he said a similar pattern could repeat.

Binh also said foreign capital is likely to differentiate. Active funds may deploy earlier to anticipate the upgrade, while passive funds typically allocate only after Vietnam is officially included in the index. As a result, the market could benefit from now until the upgrade—expected by late Q3 or early Q4—before facing short-term correction risk thereafter.

“The reasonable strategy is to participate before the upgrade phase, while considering taking partial profits after the event to safeguard gains,” Binh emphasized.

Valuation gap supports the re-rating

Tran Duc Anh, Director of Macroeconomics, Economics & Market Strategy at KBSV, said one key driver behind the upgrade process is the valuation gap between frontier markets and emerging markets. KBSV statistics show that emerging markets’ P/E ratios are typically about 1–2 points higher than frontier markets, creating room for re-rating when Vietnam is upgraded.

He compared the upgrade to moving from a 2-star hotel to a 3-star hotel: “the price level will adjust higher,” which he described as a notable mid- to long-term driver for Vietnam’s stock market.

Volatility persists; opportunities for mid- to long-term investors

Vo Nguyen Khoa Tuan, Senior Market Specialist at Dragon Capital, said geopolitical developments—especially Middle East tensions in Q1 2026—have driven swings in financial markets, shifting investor sentiment from optimism to caution and defensiveness.

Against that backdrop, he argued that volatility can create opportunities for mid- and long-term investors to accumulate shares at reasonable prices. He added that even amid turbulence, many funds still reported returns of 20–50% over the past year.

Tuan said the most important factor now is investment discipline and risk management. Investors should limit leverage, maintain appropriate cash levels, and deploy capital actively when markets experience sharp corrections.

“In periods of high market volatility and panic, there are opportunities to accumulate good quality stocks at attractive valuations while maintaining a mid- to long-term horizon given macro variables remain uncertain,” he said.

Short-term outlook: higher chance of a breakout than a deep decline

On the near-term direction, KBSV experts assessed that the probability of a breakout is higher than a deep decline. They cited Vietnam’s growth headroom for the next 5–10 years and the government’s determination to drive growth.

They also pointed to public investment as a favorable mid-term option. Previously, growth was led by FDI, but FDI has not yet recovered strongly enough to lead. To achieve high growth targets, Vietnam will need to rely more on domestic drivers, especially public investment.

KBSV noted that many stocks in this group have small market capitalizations or high financial leverage, making them more suitable for short-term trading.

Long-term view: banks and retail expected to sustain growth

Looking 10 years ahead, Tran Duc Anh said two sectors are forecast to maintain growth: banks and retail.

For banks, he said Vietnam’s economy remains heavily dependent on credit, with credit growth around 10–20% per year, supporting stable profit growth. He recommended prioritizing top private banks with technology advantages, alongside state-owned banks that offer stability and safety.

For retail, he said the drivers come from economic growth and the rapid expansion of the middle class, supporting long-term consumption. While some retail stocks may face short-term volatility, he described the long-term outlook as positive.

Additional market outlook and positioning

Another brokerage lowered its VN-Index forecast to below 2,000 points for 2026.

Foreign buyers have shown strong net buying ahead of the upgrade. With pure order matching, there has been a third consecutive session of net buying, and in March the number of new foreign institutional accounts rose to a four-year high.

The Communist Party of Vietnam—XIV Congress and related developments were also cited as context for policy directions shaping the investment landscape.

Overall, experts said the VN-Index and Vietnam’s market continue to be influenced by macro factors and long-term policy direction, but growth headroom remains—particularly supported by public investment and improvements in market structure.