(Bloomberg) — Investors are looking to FTSE Russell’s final decision on upgrading Vietnamese equities to emerging-market status to stem record levels of foreign selling.
The index provider, which in October raised Vietnam to secondary emerging market status from frontier, is set to unveil results of its interim review for the Southeast Asian country’s shares on April 7. FTSE is set to outline an implementation roadmap for the upgrade if all criteria are satisfied, with reclassification taking effect in September.
While traders had bet on improving foreign flows ahead of the change, overseas investors have withdrawn about $1.1 billion from Vietnamese equities in the three months to March, marking the biggest first-quarter outflow on record, data compiled by Bloomberg show. They’ve pulled $1.95 billion from Indonesia and remain net buyers in Malaysia, the Philippines and Thailand.
Maybank Investment Bank estimates that any FTSE upgrade could be phased in across three to five tranches starting in September, with each tranche attracting roughly $300 million to $500 million in inflows.
That could help boost Vietnam’s benchmark VN Index after a 4.6% slide this year. While it outperformed Southeast Asian peers in 2025 with a 41% surge, it’s now lagging most of them on concerns that the Middle East conflict will weigh on the nation’s economy.
Profit taking and company-specific issues may be driving the outflows, said Marco Martinelli, a partner at Turicum Investment Management. Ongoing geopolitical uncertainties amid the Iran war have also hit global investor sentiment, he added.
Meantime, Vietnamese authorities have stepped up reforms to improve market accessibility. Recent measures include removing pre-funding requirements for equity trades, raising foreign ownership limits at selected banks and advancing plans for a centralized clearing system by 2027. Regulations introduced in February allow foreign investors to trade via global brokerages rather than relying solely on local firms.
Market watchers remain broadly optimistic ahead of the review. Nguyen Thomas, chief global markets officer at SSI Securities Corp., said he expects “no surprises,” with Vietnam likely to clear the interim hurdle and work toward implementation. The nation is also targeting a similar reclassification by MSCI Inc. before the end of the decade.
Read: Vietnam Sets Sights on MSCI After Clinching FTSE Russell Upgrade
Analysts say the status change would also validate years of progress in modernizing Vietnam’s capital markets infrastructure. Estimates suggest passive inflows alone could reach $1 billion to $1.5 billion shortly after inclusion, while Maybank projects total foreign inflows of $6 billion to $8 billion over the longer term.
FTSE in November said Vietnam was projected to account for 0.34% of its emerging all cap gauge, based on 2024 data. It also listed Vingroup, Masan Group and Hoa Phat Group among potential joiners. The final lineup of eligible firms will be published before FTSE’s semi-annual index review in September.
Still, achieving emerging-market status with MSCI, widely seen as the more influential benchmark, may be more challenging. That would require further loosening of foreign ownership limits in key sectors, improving regulatory clarity and expanding English-language disclosures. An MSCI nod could significantly broaden Vietnam’s investor base and support longer-term economic ambitions.
The FTSE upgrade is considered as a “critical beginning step,” said SSI’s Thomas. “It’s like a toddler’s first step — it looks small, but it may have been the most important step in a human being’s journey,” he said.
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