Will foreign capital return to Vietnam’s stock market?

Net selling from foreign investors

Since the official market upgrade, the VN-Index has experienced ongoing volatility, with liquidity failing to deliver the expected surge. Average daily trading value has hovered around VND 15,000–16,000 billion, down approximately 15% compared to early September 2026, prior to the upgrade.

Crucially, foreign capital inflows have shown no sign of a meaningful rebound. Overseas investors have remained steadfast net sellers. Statistics from the Ho Chi Minh City Stock Exchange (HoSE) reveal that in the first week post-upgrade (21–25 September), foreign institutions turned sharply to net selling, offloading around VND 2,868 billion on HoSE (and roughly VND 3,000 billion across the entire market, including HNX and UPCoM). Heavy selling pressure concentrated on blue-chip equities such as VIC, VHM, VPB, CTG, and ACB, alongside numerous constituent and non-constituent stocks within the VN30 basket.

According to Mr Huynh Tuan Khanh, CEO of KIM Vietnam Fund Management, global capital is currently rotating out of emerging markets toward destinations boasting superior earnings growth stories, such as tech equities in the United States, Japan, and China. Vietnam, alongside other Asian stock markets, is competing directly for capital against these high-conviction global destinations. Overseas investors have been net sellers throughout the first nine months of this year, recording total net capital outflows of approximately USD 3.6 billion. Nevertheless, this outflow remains relatively modest compared to broader Asian peers facing capital flight, including South Korea (USD 120 billion), Taiwan (USD 35 billion), and India (USD 25 billion).

What is driving the sell-off?

Mr Duong Van Chung, Head of Investment at MBS Securities (Northern Region), noted that the key catalyst behind the heavy foreign selling is the persistent interest rate pressure across both domestic and international markets. To date, 10-year US Treasury yields and the US Dollar Index (DXY) have stayed elevated, keeping global capital cautious and prompting investors to seek safe-haven assets rather than deploying aggressively into emerging equities in the near term.

Mr Chung emphasized that while Vietnam’s stock market is projected to attract billions of dollars post-upgrade, these figures represent long-term capital inflow potential rather than an immediate liquidity injection. The inclusion of Vietnamese equities into FTSE Russell’s index suite is structured across four phases through September 2027. The initial tranche alone is expected to bring in roughly USD 228 million. While passive funds deploy capital incrementally in stages, sell-off pressure from existing foreign investors, including potential redemptions from frontier market funds, may persist, fuelling the recent market instability.

Beyond the timeline of passive fund disbursements, the reversal of foreign capital flows remains heavily exposed to broader global market dynamics. Historically, major influxes of capital into frontier and emerging markets required a confluence of conditions: robust global economic expansion driven by emerging markets, alongside a weakening US dollar cycle. However, Vietnam’s stock market has yet to see these macro conditions fully align, explaining the recent wave of foreign capital outflows.

When will foreign inflows return?

Mr Nguyen The Minh, Director of Investment Banking at ABS, estimates total foreign capital into Vietnam could reach approximately USD 8 billion over the next 12 months, including allocations from passive funds. However, to capture this opportunity in the long run, Vietnam must continue expanding its market capitalization, deepening liquidity, lifting foreign ownership limits (FOLs), and enhancing hedging mechanisms.

"In the short term, with the bulk of passive capital still waiting to be deployed and conditions for active capital remaining challenging, any easing in foreign net selling would be a positive signal before the market enters a new cycle," Mr Minh highlighted.

In essence, the market upgrade serves as a passport for Vietnam’s stock market, confirming that its trading infrastructure meets FTSE Russell’s minimum requirements. However, this does not guarantee an immediate surge of foreign capital, as individual investment funds operate under distinct capital allocation mandates and deployment schedules.

According to market experts, forthcoming disbursements aligned with FTSE Russell’s roadmap should help temper foreign net selling. Passive funds tracking the FTSE GEIS index are scheduled to execute three further buying tranches in March, June, and September 2027.

Active capital tends to enter earlier and is highly selective, focusing on sector outlooks and corporate fundamentals. Consequently, actual foreign capital deployment will hinge on Vietnam’s capacity to sustain trading liquidity, improve market quality, and expand room for foreign ownership.