How will foreign investors react to Vietnam's upgraded market?

However, even before the official announcement—when the upgrade was almost certain—and after it, foreign investors’ capital inflows have yet to accelerate.

Unlocking a Major Capital Inflow

The market reclassification opens the door to large-scale foreign investment in Vietnam’s stock market, following the common pattern observed in all markets that have undergone upgrades. The impact is particularly evident through both passive and active investment funds tracking FTSE or MSCI indices.

According to Bloomberg data, most markets see a five- to sevenfold surge in foreign inflows once they are officially upgraded, regardless of whether the criteria follow FTSE or MSCI standards.

Assuming that all Vietnamese stocks under the FTSE Vietnam Index are included in the FTSE Emerging Market Index, Tran Hoang Son, Chief Market Strategist at VPBank Securities (VPBankS), estimates that $3–7 billion in both passive and active funds could flow into Vietnam’s market after the upgrade takes effect. (FTSE data suggests that active fund assets are typically five times larger than ETF assets.)

Forecasts vary across financial institutions. HSBC projects potential foreign inflows ranging from $3.4 billion to $10.4 billion, whereas VinaCapital estimates about $5–6 billion, including $1 billion in passive and $4–5 billion in active funds.

Still, one thing is clear: global funds are eyeing Vietnam closely. This growing attention reinforces the government’s determination to secure the upgrade and to continue aligning with MSCI standards, creating a more efficient capital-raising market for the economy. 

Why Are Foreign Investors Still Selling?

From the start of 2025 until now—both before and after the reclassification—foreign investors have been net sellers, with cumulative net outflows reaching around VND 110 trillion. During the week of the FTSE upgrade announcement (October 6–10, 2025), net selling slowed, focusing mainly on banking and retail stocks. 

According to Nguyen The Minh, Head of Retail Research at Yuanta Vietnam, the main reason for foreign outflows remains the interest rate gap between the USD and the VND, combined with the strong appeal of U.S. equities, which continues to draw capital away from emerging markets, including Asia and Vietnam.

He added that, unlike in the past when foreign investors often held stocks for decades, portfolio rebalancing within a one-year cycle has now become common. As market size and liquidity expand, position-trading volatility naturally increases.

Minh also noted that Vietnam’s stock market still faces a “testing phase” in March 2026, with the upgrade becoming effective in September. Hence, the full impact of foreign inflows will materialize gradually as the new classification takes effect.

Tran Hoang Son pointed out that in markets like Qatar and Kuwait, both passive and active inflows surged significantly about six months after their upgrade announcements.

“In Vietnam, around 70% of foreign capital comes from ETFs—unlike Qatar, the UAE, or Kuwait, where most investments are active funds tracking MSCI or FTSE indices,” he said.

He explained that amid the broader Asian outflow trend, driven by U.S. yield differentials, the AI boom, and tariff uncertainty under U.S. policy, FTSE Frontier ETFs are liquidating existing positions to either close funds or transition to new benchmark indices. “ETFs will only return once Vietnam is officially added to the FTSE Emerging Market basket,” Son said, reaffirming his positive outlook on future inflows.

Short-Term Outflows, Long-Term Optimism

Experts caution that given the strong market rally since early 2025, the market’s reaction to the October upgrade may remain measured. In the short term, foreign investors are likely to continue net selling, even as the reclassification story boosts sentiment.

In practice, while the VN-Index is nearing a historic high of 1,800 points, gains remain uneven across portfolios—with only a few major stocks, such as those in the Vingroup and Gelex groups benefiting from sector-specific capital rotation.

From the upgrade decision to the market’s next growth catalyst, Vietnam’s stock market still holds a positive long-term outlook.