Stock market upgrade is not a magic wand

In the short term, Vietnam’s stock market direction is expected to continue being shaped by macroeconomic conditions, profit growth, valuations, and the influence of global developments. On April 8, FTSE Russell confirmed an upgrade of Vietnam’s market status from frontier to secondary emerging, lifting sentiment as the VN-Index rose by nearly 80 points. However, the optimism faded quickly the next day, when the index fell by about 20 points and many stocks turned red, while foreign selling remained heavy with net outflows exceeding 2.2 trillion dong.

Foreign outflows remain the key pressure

Foreign net selling is a major concern. From the start of 2025 to date, cumulative net selling is approaching 6 billion USD, reducing foreign ownership in Vietnam’s stock market from around 23% in 2019 to below 12% currently.

Nguyễn Thế Minh, Head of Research and Development at Yuanta Vietnam Securities, said the outflow trend is driven by two main factors. First, risks linked to global and regional real estate markets—especially after 2022—have increased volatility in corporate bonds. Second, portfolio rotation is underway: “If during 2018–2019 foreigners were net buyers of large real estate stocks, now they are withdrawing from this group due to perceived sector risk,” he said.

He also pointed to interest-rate and exchange-rate dynamics. “When USD and Japanese yen yields stay high, while profits in developed markets rise, global capital will move,” Minh noted. In that environment, foreign funds often reduce exposure to emerging markets and shift toward safer channels, and Vietnam is not immune.

Geopolitics and US tax policy also factor in

Huỳnh Anh Tuấn added that foreign outflows are also influenced by geopolitical factors and US tax policy, leading funds to reassess risk and rebalance portfolios. “Not only Vietnam’s stock market, but many frontier and emerging markets have seen similar capital withdrawals,” he said.

Domestic capital offsets some of the impact

Despite foreign outflows, domestic capital continues to rise. The scale and financial strength of domestic securities firms suggest that foreign selling of several billion dollars has not significantly undermined the Vietnamese stock market.

On how foreign capital could return, Tuấn said it would likely happen when geopolitical tensions ease and yields on USD and JPY decline. “Vietnam, after its upgrade, is expected to attract a new wave of capital,” he said.

What could attract more investors after the upgrade

To draw both domestic and foreign investors, experts said more high-quality enterprises and products need to be listed. Foreign funds may find it difficult to participate in small-cap companies with less attractive capitalization. For attracting large-cap listed firms, appropriate incentives—such as preferential policies or tax relief—may be needed.

Minh said that over the past two years, the government has taken decisive steps to develop the capital market. As a rule of thumb, when GDP grows by 10%, credit should grow by at least 20%, but this target is difficult to achieve. As a result, the capital market—covering both bonds and stocks—will play a more important role.

He added that the government and the Ministry of Finance have focused on improving the legal framework and promoting capital market development while balancing its role with the debt market. This is expected to support firms in pushing initial public offerings and listings. At the same time, Minh said investor structure needs to shift toward a higher share of institutional investors, especially foreign investors, to help stabilize long-term capital flows.

Market selectivity and sector implications

Experts said that after the upgrade, capital is likely to become more selective, prioritizing large-scale and transparent firms. Large-cap groups are expected to be primary targets for foreign investors due to liquidity and larger free float.

Banks were highlighted as a “backbone” of the market, benefiting from macro stability and capital market expansion. The securities sector is also expected to gain from higher liquidity and new products as infrastructure such as KRX comes online. Meanwhile, industrial real estate was cited as benefiting from tangible assets and the trend of foreign direct investment into Vietnam.

Outlook for the short term: corrections, not a straight line

Minh cautioned domestic investors to avoid a “hype trap” and herd mentality, warning against chasing hot stocks based solely on upgrade-related expectations while ignoring fundamentals. “The upgrade is a multi-year process, not a magic wand that makes the stock market rise immediately. New investors should adopt a long-term mindset rather than seeking quick profits in a few sessions,” Tuấn advised.

On the timing of market stabilization after geopolitical events, Minh said that using the US S&P 500 as a reference, markets typically take about 22 sessions to form a bottom and about 47 sessions to recover. He emphasized that Vietnam’s trajectory is unlikely to be V-shaped, describing it instead as more “zig-zag,” with negotiations expected to be lengthy and complex, while the overall trend remains upward with ongoing corrections.

Inflation concerns are viewed as less severe than in 2022

Regarding inflation, Minh said it is not as worrying as in 2022. Unlike that period—when oil, gas, and input prices surged and pushed US inflation above 9%—the current environment is mainly characterized by volatility in oil prices. He projected that inflationary pressure may rise in March and April, then ease from May to June, suggesting it should not significantly affect market fundamentals.