Vietnam has achieved a significant milestone by being upgraded to emerging market status by FTSE Russell, marking the first time the country has reached this classification. This advancement is anticipated to attract billions of dollars in investments to Vietnam’s equity markets and will be officially implemented next September, contingent on a review scheduled for March.
FTSE Russell based its decision on notable improvements in the settlement of trades within Vietnam, categorizing it among secondary emerging markets, a list that includes established economies like China, India, and Indonesia. This upgrade comes at a critical moment for Vietnam, as the nation has increasingly become a vital player in the global supply chain, especially as manufacturing operations shift away from China.
Thuy Anh Nguyen, a director at Dragon Capital, noted the potential for this upgrade to stimulate investments by stating that it could bring in tens of billions of dollars in active investments alongside around $500 million in passive inflows. The upgrade to emerging market status will facilitate institutional investments that were previously deterred by Vietnam’s former classification as a frontier market. Nguyen emphasized that the new status simplifies the investment landscape for foreign institutional investors.
Bill Hayton, associated with Chatham House’s Asia Programme, described the upgrade as a significant development for Vietnam, highlighting it as a move towards greater recognition as a competitive international economy. Since being placed on FTSE Russell’s watchlist for an upgrade back in 2018, Vietnam has made substantial market reforms aimed at attracting foreign investment. These reforms have included easing regulations, lifting several foreign ownership limits, and adopting elements from the Korea Stock Exchange to enhance market infrastructure.
Despite grappling with a sharp sell-off tied to U.S. tariffs implemented during Donald Trump’s presidency, the benchmark Ho Chi Minh stock index has seen impressive gains, climbing 33 percent this year and establishing itself as one of the top performers in the Asian markets. Investors attribute this upturn to the government’s strategic pivot towards more business-friendly policies in response to external pressures, which has bolstered overall market confidence.
Ruchir Desai, a fund manager at Asia Frontier Capital, remarked on Vietnam’s proactive measures, noting the country’s heightened focus on enhancing private sector engagement, investing in infrastructure, and promoting domestic investments.
The potential financial impact of Vietnam’s upgrade to emerging market status has been recognized by institutions such as the World Bank, which predicted that further classification upgrades by MSCI and FTSE Russell could result in a net inflow of $25 billion by 2030, provided that Vietnam maintains its reform trajectory and that global investment conditions remain favorable.
Currently, MSCI classifies Vietnam as a frontier market, but the country has set its sights on securing an upgrade to emerging market status by 2030. Additionally, Vietnam is aiming to achieve recognition as an “advanced emerging market” by FTSE during the same timeframe, necessitating ongoing reforms to meet these more rigorous standards.
Investing in Vietnam has historically presented challenges for foreign investors, including lengthy processes to obtain necessary identification and premiums on shares due to ownership restrictions for non-Vietnamese investors. Many foreign retail investors typically engage with the Vietnamese market through overseas listed funds. FTSE Russell’s announcement acknowledged the limited access to global brokers for trading in Vietnam, underscoring a need for continued improvements in market accessibility.
