Billion-dollar opportunity hinges on corporate strength

The FTSE Russell recently elevated Vietnam's stock market from frontier to secondary emerging market status on September 21, presenting fresh prospects for overseas investors. This market upgrade not only acknowledges progress in the institutional framework but also generates new avenues for international capital inflow and market expansion.

Experts at Vietnam's Dragon Capital estimate that US$1.46 trillion in capital will be needed for economic development between 2026 and 2030. Consequently, the market upgrade, alongside the creation of an international financial hub and a strategy to entice new foreign investments, could provide additional pathways for medium- and long-term financing.

Enhanced access to foreign capital could alleviate pressure on the banking sector and the State budget, which currently shoulder significant capital provision responsibilities. Prior to the official transition, foreign capital flows into Vietnam's stock market had already demonstrated heightened activity. In the last trading session of the previous week, foreign investors were net purchasers by over VND1.2 trillion.

Furthermore, foreign investors bought more than VND450 billion worth of government bonds in August. Notably, Vanguard, the world's second-largest asset management firm and a key player tracking FTSE index series, plans to invest approximately US$2.5 billion in Vietnam in the coming years, aligned with the market upgrade and broader integration into international benchmark indices.

Financial regulators are also focusing on promoting foreign direct investment (FDI) enterprises to list on Vietnam's stock market. Although FDI enterprises currently constitute more than three-quarters of the country's total export turnover, their representation on the stock market is minimal. By the end of 2025, FDI enterprises' charter capital on the market accounted for only about 0.15 percent of the entire market's total charter capital.

Encouraging more FDI companies to list would improve the quality of listed assets and boost the market's allure to international investment funds. However, heightened opportunities do not guarantee a surge in capital flow into Vietnam. Recent interest rate hikes by the US Federal Reserve, combined with exchange-rate pressures and the risk of capital shifting away from emerging markets, necessitate careful monitoring.

While the VN-Index may not necessarily decline during periods of Fed monetary tightening, as market flows often react to expectations about future policy rather than a single rate hike, experts advise against overestimating the immediate impact of the market upgrade on foreign capital. In the short term, the economy and stock market will persistently grapple with interest rates, exchange rates, and liquidity challenges.

Long-term capital requires high transparency, robust corporate governance, effective business performance, and companies' aptitude to absorb capital efficiently. Thus, the ability to leverage the upgrade hinges on Vietnam's companies' intrinsic strength. The reclassification may initially stimulate market sentiment and capital flows, but the ultimate determining factors will be companies' financial health, earnings growth, and reasonable valuations.

Businesses aiming to attract sustained foreign capital must showcase genuine business efficiency, sound governance, and the potential for sustained growth. The market upgrade merely paves the way; the open door to international capital will remain largely vacant until Vietnamese companies prove their worth, market transparency deepens, and the country's stock market matures.