Foreign capital awaits upgrade catalyst

Recent fluctuations in foreign capital flows are closely linked to global geopolitical tensions, which are reshaping international financial flows.

From Net Selling to Upgrade Expectations

Asia currently depends on the Middle East for 60–80% of its oil supply and 30–40% of its gas. Amid the Middle East conflict, disruptions at a key LNG facility in Qatar have pushed energy supply chains into a force majeure situation, creating a shortfall of 5–7 million barrels of oil—2.5 times higher than during the Russia–Ukraine conflict. This severe supply-demand mismatch has forced global financial institutions to reassess risk exposure in Asia, triggering widespread capital outflows.

In this context, Vietnam’s stock market has not been immune. However, foreign net selling pressure should be assessed comprehensively rather than based solely on absolute figures. In Q1 2026, foreign investors recorded net selling exceeding VND 30 trillion, continuing the trend from 2025. The key factor, however, lies in the domestic market’s absorption capacity.

Experts note that Vietnam’s stock market is undergoing a structural shift in capital flows. Closed-end funds with fixed investment cycles of 5–7 years and limited liquidity are gradually exiting as they approach the end of their cycles. In their place, open-ended funds and ETFs are gaining prominence due to their flexibility, lower costs, and continuous capital mobilization capabilities. This aligns with modern institutional capital trends, particularly as passive investing becomes increasingly dominant.

Dr. Le Anh Tuan, CEO of Dragon Capital Vietnam Fund Management, forecasts that as Vietnam moves closer to meeting market upgrade criteria, it could attract an additional USD 2–5 billion over the next 12 months. Notably, this year, as exchange rate and tariff pressures ease, foreign capital is expected to return to a sustainably positive trajectory.

According to Mr. Ngo Minh Duc, a securities expert, the return of foreign capital will follow a technical roadmap rather than occur instantly, closely tied to the market upgrade process.

Key milestones include a transitional phase after early April, followed by portfolio restructuring by funds starting around mid-September. During this period, Vietnamese equities are expected to account for approximately 0.02%–0.04% in emerging market indices. ETF inflows are projected at around USD 1.5 billion, disbursed in phases through dollar-cost averaging strategies to minimize market impact and optimize capital costs.

More broadly, Vietnam reflects a regional trend where global capital is prioritizing developed markets, particularly the U.S. However, as the global monetary cycle shifts—especially when major central banks begin easing policies—the earnings growth advantage of emerging markets could once again attract capital inflows.

Caution Over Inflationary Pressures

Despite this outlook, the stock market still faces cyclical risks, particularly dual inflationary pressures from energy and agriculture. Mr. Vu Duy Khanh, Director of Analysis at Smart Invest, notes that historically, agricultural inflation tends to follow energy price increases.

Currently, gas shortages have forced many fertilizer plants—especially in India—to operate at only about 50% capacity, driving up input costs significantly. The global agricultural index is approaching a 20-year resistance level, and if breached, a new cycle of food inflation could emerge, putting pressure on interest rates and exchange rates.

Within the regional landscape, Vietnam occupies a “middle-ground” position—offering growth potential while facing multiple sensitivities. The market is influenced by sentiment from developed economies while also managing domestic inflation challenges. However, Vietnam’s agricultural export strength provides a natural hedge when commodity prices rise. Conversely, exchange rate volatility remains a key factor influencing foreign capital decisions.

Another notable issue is the imbalance in market capitalization structure. The VN-Index is heavily dependent on banking and real estate sectors, meaning it does not fully reflect growth in other sectors such as agriculture or exports. This places greater demands on investors to select stocks carefully rather than rely solely on overall market trends.

Overall, Vietnam’s stock market is entering a critical phase of transformation in the quality of capital flows. The gradual replacement of closed-end funds by ETFs and open-ended funds represents not just a structural shift but also a necessary step toward market upgrade. Short-term foreign net selling should be viewed as part of an inevitable restructuring process. For strategic investors, this is a time to reposition portfolios, prioritizing sectors that benefit from commodity cycles and can adapt to increasingly stringent transparency standards