Vietnam Braces for FTSE Emerging-Market Upgrade as Foreign Funds Return
Vietnam's expected FTSE Russell upgrade to secondary emerging market status has revived foreign buying, with an estimated $6 billion in inflows possible over the transition through 2027.
Foreign investors have stepped up purchases of Vietnamese equities this week, ahead of an expected reclassification of the country's stock market to secondary emerging market status by index provider FTSE Russell on Monday.
FTSE has previously projected that the upgrade could channel as much as $6 billion into Vietnamese shares as funds tracking its indexes gradually rebalance their portfolios. The transition is set to be carried out in four stages through 2027.
Brokerage SSI Research estimates that passive funds tracking FTSE indexes will buy roughly $240 million worth of Vietnamese shares in the first tranche on September 18, before the index changes take effect.
Anticipation of the move has helped draw overseas investors back. They have bought a net 1.42 trillion dong ($54.63 million) worth of shares so far this week, though they remain net sellers of more than $3.6 billion for the year to date.
In August, FTSE identified 27 Vietnamese stocks eligible for its FTSE Global All Cap Index, including conglomerate Vingroup, technology firm FPT and steelmaker Hoa Phat Group.
SSI Research expects the largest first-round exchange-traded fund inflows to target private bank VPBank, developer Vinhomes, FPT and Hoa Phat. Vingroup, by contrast, could see net outflows of about $28 million as selling by existing ETFs outweighs upgrade-related buying, the brokerage said.
"The FTSE upgrade is a signpost on the journey to greater awareness and involvement by foreign investors," said Craig Martin, chairman of Vietnam-focused equity fund Dynam Capital. "The market remains relatively cheap and earnings growth is still strong," he said.
Even with the optimism surrounding the upgrade, Vietnam's benchmark VN-Index has gained only about 1.4% this year, trailing rises of roughly 24% in Thailand and 21% in Singapore, according to LSEG data. Last year, Vietnam was Southeast Asia's best-performing stock market as investors positioned for the expected FTSE reclassification.
Some concerns persist, including foreign ownership limits and free-float constraints for certain companies.
The milestone has also renewed expectations of a future upgrade by MSCI. Investors say the introduction of a central counterparty clearing mechanism, expected as early as 2027, could help Vietnam move closer to meeting MSCI's market-access requirements.