Vietnam – emerging from the frontier

The Vietnam stock market is on track to receive up to USD 1.2 billion of passive inflows¹, following FTSE Russell’s decision to upgrade the country from Frontier to Emerging Market status.

Announced in September last year², and confirmed in March³, the reclassification is a major development for the USD 313.6 billion Southeast Asian market, as it will significantly boost participation from international institutional investors, while at the same time potentially paving the way for further upgrades by other index providers.

The decision will become effective in September 2026, with an inclusion process to be implemented via four-tranches that will be completed in September 2027. The country’s projected weight in the FTSE Emerging Market Index will be 0.23% to 0.35%⁵.

On the financial front, he describes how the upgrade will expose Vietnam to a broader range of capital, as the amount of institutional money invested in emerging markets is much larger than investments in frontier markets. The stocks that will most likely benefit from index inclusion are the large cap names, he added.

And when it comes to the macro picture, increased foreign inflows will bring greater liquidity to the stock market, allowing Vietnam to redistribute savings more easily into investments, which is net positive for economic growth. And deeper capital markets will also present opportunities for more IPOs to take place, thus reducing the reliance on bank capital for corporate expansion.

The Vietnamese economy is one of the fastest growing in Asia. In the first quarter of 2026, it grew by 7.8% year-on-year, compared to 7.1% in the same period in 2025⁶. Such rapid economic growth is fuelling the growth of the local middle class, who are turning more to the stock market to build long-term wealth.

Vietnam’s long-anticipated upgrade has been on the cards since 2018, when FTSE Russell put the market on its watchlist. The decision to go ahead with the reclassification follows a flurry of market reforms that aligned it more closely with international standards.

Perhaps the single most important change is the removal of pre-funding requirements that required investors to transfer funds before buying shares. Adherence to this rule meant that investor capital was tied up in Vietnam and unable to be used elsewhere before the trade was complete.

Ever since late 2024, a non-prefunding solution in the country more closely aligns to international standards, which within its first six months accounted for around 80% of volumes of HSBC client trades.

Account opening has also been significantly simplified, enabling faster and smoother entrance to the market. The regulator streamlined the documentation required, shortening the process to less than two working days in most cases. And most recently, a global broker model was launched, removing the requirement to open an account with a local broker, with foreign investors now able to deal directly with the international broker they use in multiple markets.

And finally, a number of operational efficiencies have been introduced. There is now synchronised infrastructure for the whole market, with standardisation, automation, and connectivity between participants – such as the stock exchange, the central depository, and brokers. Previously manual processes, like the manual phone call for inventory check, have been replaced with an automated option, which HSBC enables with top brokers.

Looking to the future, the market will introduce a Central Counterparty (CCP) model for clearing and settlement, which is expected to take place in the first quarter of 2027. And in the medium to long-term, future enhancements could include a relaxation on the foreign ownership limit, omni-account trading for global brokers, and new products like securities lending.

With these in place, Vietnam will further align with international standards. The potential for deeper integration into the global financial system bodes well for increased participation by foreign institutions going forward.