Vietnam stocks near billion-dollar breakthrough as market upgrade looms

Many securities analysts believe the long-awaited market upgrade could drive the VN-Index higher in the final months of the year, unlocking billions of dollars in foreign capital for Vietnam’s stock market.

Under the plan approved by the Government, Vietnam aims to be upgraded from a frontier market to a secondary emerging market by FTSE Russell within this year.

Minister of Finance Nguyen Van Thang stated in mid-September that Vietnam “has made strong efforts to meet FTSE’s upgrade criteria.” The organization is expected to announce the evaluation results on October 8.

FTSE Russell is one of the world’s three leading index providers, alongside MSCI and S&P Dow Jones Indices, serving as key benchmarks for global investors.

According to VPBank Securities (VPBankS), capital inflows after the upgrade are typically five to seven times higher than the average of the pre-upgrade period, equivalent to about US$3 billion –$7 billion when the decision takes effect. Meanwhile, Vietcap Securities forecasts a range of $6 billion – $8 billion.

Taking a more optimistic view, HSBC projects that the FTSE upgrade could attract as much as $10.4 billion in foreign investment into Vietnam’s stock market. However, HSBC also notes that actual inflows are likely to be more modest and spread out over time, as FTSE usually provides about six months’ notice before changing a market’s classification.

Still, an upgrade does not mean the index or liquidity will surge overnight. Data from other markets indicate that trading activity typically increases during the four months preceding the official announcement.

Foreign investors tend to record net buying in the month of the decision, followed by a gradual slowdown or even a switch to net selling.

During the annual meeting at the end of September, Nguyen Duy Hung, Chairman of SSI Securities, said that the upgrade should not be seen as “a magic wand.” The market before and after the announcement will not transform overnight. “It is unrealistic to expect a sudden surge simply because an external organization issues an upgrade decision. Rather, it should be viewed as a ‘certificate’ recognizing that Vietnam’s market has advanced toward meeting international standards.”

Currently, most organizations classify markets into three main groups: developed, emerging and frontier. Each organization uses its own criteria and methodology for assessment, but common factors include market size, foreign ownership limits, currency convertibility, post-trade settlement systems, short-selling and securities lending mechanisms.

FTSE Russell reports that by the end of 2024, over $4.9 trillion in passive investment assets will be tracked by its indices. In addition, around $20 trillion in total assets under management reference FTSE Russell indices. For MSCI, more than 1,400 equity ETFs are linked to its indices, with total ETF assets surpassing $2 trillion by mid-July, a 17% increase since the beginning of the year. Including fixed-income assets and mutual funds, the total figure reaches $17 trillion.

Following the market upgrade news, Vietnam’s stock market rallied strongly on October 6, with the VN-Index jumping nearly 50 points to around 1,696, the intraday high, while the VN30 reached a record 1,918 points. On the Ho Chi Minh City Stock Exchange (HOSE), 260 stocks advanced, with nearly 8.5% hitting their daily upper limits.