Investors attend the first transaction of a a ticker symbol on the Ho Chi Minh Stock Exchange (HoSE). — VNA/VNS Photo

HÀ NỘI — Việt Nam’s stock market is approaching a pivotal moment, with FTSE Russell scheduled to announce its market upgrade evaluation on October 8 (local time). All eyes are on how the market typically reacts following such upgrades, as historical data suggests liquidity surges in the six months preceding the official announcement.

According to a recent report by BIDV Securities JSC (BSC), the strategy for Việt Nam’s stock market development between 2025 and 2030 will be driven by several key factors. Foremost among these is the inflow of domestic capital, supported by low interest rates and attractive valuations. This domestic investor base currently represents nearly 80 per cent of market liquidity, acting as a crucial pillar of support.

The second essential factor is the upgrade itself, a central goal of the development strategy. Việt Nam aims to achieve secondary emerging market classification from FTSE by 2025, with MSCI recognition hoped for by 2030. Should this ambition be realised, it could unlock tens of billions of dollars in foreign capital over the medium to long term.

Enhancing liquidity remains another central concern, with a target average trading value of approximately US$2 billion per session from 2026 to 2030, aligning Việt Nam with other emerging markets in the region.

However, the market faces challenges, including large-scale net selling by foreign investors over the past three years, reflecting a cautious sentiment. Rising margin risks and volatility in international markets also pose ongoing threats to the benchmark VN-Index.

BSC Research notes that strategic measures to achieve the upgrade include Decree 245/2025/ND-CP, designed to remove barriers and facilitate foreign investor participation. The decree provides a legal framework enabling the Ministry of Finance (MoF), the State Bank (SBV) and the State Securities Commission (SSC) to implement long-term strategies for sustainable market development in line with international standards.

Future outlook

The upgrade objective is to align Việt Nam’s stock market with MSCI standards and the Advanced Emerging Market category. FTSE’s approval decision on September 12 demonstrates the long-term vision and commitment of regulatory authorities to capital market development. The MoF’s restructuring plan for investors aligns with the upgrade roadmap observed in other countries, such as Saudi Arabia, following its own upgrade. 

BSC estimates that FTSE Russell may approve Việt Nam’s upgrade on October 7 (EST), with an 80 per cent probability. In that scenario, the transition would likely occur in at least two phases spanning six to twelve months. If foreign investors require additional time to assess reforms, FTSE could defer the upgrade to March 2026, with a 20 per cent probability.

Historically, markets often rise in anticipation of an upgrade, with liquidity improving significantly in the six months prior to FTSE approval. However, a period of adjustment generally follows within three to six months after the announcement.

Experience from other markets shows that stock prices may surge due to expectations and rebalancing by foreign funds before the upgrade. Once included in the new index, profit-taking pressure and limited demand can prompt corrections.

In the case of a downgrade, capital withdrawals from index funds prior to the effective date may exert downward pressure. Once removed from larger indices (Developed/Emerging), selling pressure tends to subside, supported by attractive valuations, speculative capital flows, and a return to growth momentum.

This dynamic often produces modest net gains from upgrade events, although short-term volatility can be pronounced, especially in smaller markets where exchange-traded fund (ETF) capital flows make up a significant portion of overall liquidity. — BIZHUB/VNS