Vietnam joins FTSE Russell emerging market benchmark

Hanoi - Vietnamese stocks were incorporated into FTSE Russell's emerging market indexes on Monday, signifying a significant milestone for the nation's stock market after years of reforms to attract foreign investment. The index provider predicts the addition could funnel up to $6 billion into Vietnam, which has been under consideration since 2018 for inclusion in a category that also encompasses China and India.

Vietnam's benchmark stock index rose 0.54% on Monday, propelled by banks, before experiencing a slight decline. Anticipation of the upgrade spurred renewed interest from foreign investors in Vietnamese equities. According to data from the Ho Chi Minh Stock Exchange, overseas investors purchased a net 2.7 trillion dong ($104 million) worth of shares last week, though they are currently net sellers by approximately 91 trillion dong.

However, following the initial enthusiasm, interest is likely to wane, said Thomas Nguyen, chief global markets officer at SSI Securities Corporation, Vietnam's second-largest broker by market share. The transition will occur in four stages through 2027, with 10% added in September, 20% in March, and 35% each in June and September of the following year.

As the next inclusion tranche approaches in March, interest is expected to pick up again, as local investors may experience a more substantial impact due to the larger allocation. Asset management firm Vanguard plans to increase its investment in Vietnam to approximately $2.5 billion over the next few years. However, concerns persist regarding foreign ownership limits and free-float constraints for certain companies.

The milestone has also reignited expectations of a potential future upgrade by MSCI. Investors believe the introduction of a central counterparty clearing mechanism, expected in 2027, could facilitate Vietnam's progress toward meeting MSCI's market-access requirements. Nguyen emphasized that the rollout of a central counterparty clearing mechanism is crucial for Vietnam's efforts to secure a future MSCI upgrade.

FTSE focuses on market access, while MSCI prioritizes scale. Therefore, the central counterparty clearing mechanism is deemed essential for Vietnam's pursuit of a future MSCI upgrade.