The State Securities Commission of Vietnam announced on Tuesday that the country has submitted its formal application for upgrade to FTSE Russell’s Secondary Emerging Markets classification, completing a multi-year regulatory development process that has aligned the Vietnamese market structure with the requirements that the index provider has specified. The decision on the application is expected during the September annual review, with implementation effective in March 2027 if the upgrade is confirmed.
The regulatory adjustments that have enabled the application have been substantial. The settlement framework was modernised during 2024 to accommodate non-prefunded trading for foreign institutional investors, addressing one of the principal historical concerns about market accessibility. The disclosure framework for listed companies has been strengthened, with quarterly reporting requirements aligned with international standards and with English-language disclosure obligations expanded to cover all material information. The custody arrangements available for foreign investors have been broadened, and the foreign ownership limit framework has been clarified through implementing regulations that addressed previous ambiguities.
The market infrastructure improvements include the implementation of the new trading platform that the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange have deployed, providing trading capacity, surveillance capability, and settlement integration that match the standards of more developed regional markets. The technology investment has been substantial, with cumulative spending on the trading and post-trade infrastructure exceeding $400 million across the past three years.
The economic implications of the upgrade would be significant. FTSE-tracking institutional investment funds globally manage assets in excess of $13 trillion, and the inclusion of Vietnam in the Secondary Emerging Markets index would direct passive index allocation flows that industry estimates place at $1.5 billion to $2.5 billion in the initial implementation phase, with continuing flow as the country’s index weight develops. Active manager allocations, which have historically exceeded passive allocations by a multiple, would likely produce additional flow in the same range or larger.
The eligible Vietnamese listings under the FTSE methodology would initially include approximately twenty-five to thirty-five companies, with concentration in the major financial services, real estate, consumer staples, and industrial categories. Vinamilk, Vingroup, Hoa Phat Group, the major commercial banks including Vietcombank and BIDV, and the leading technology companies including FPT and VNG would likely feature prominently in the eligible universe. The free float and liquidity criteria that the index methodology applies will determine the specific composition.
The MSCI methodology comparison has been a recurring topic in the regulatory discussion. MSCI’s emerging market inclusion criteria differ from the FTSE Russell approach in several respects, and the Vietnamese application is specifically directed at FTSE rather than at both index providers. The MSCI watchlist process for Vietnam has not yet advanced to the active review stage, partly because of the differences between the two providers in their assessment of the foreign investor accessibility framework. The Vietnamese authorities have indicated that the MSCI engagement will continue as a separate workstream from the current FTSE application.
The foreign ownership limit framework remains the most significant outstanding regulatory question. The current framework limits foreign ownership to 49% for most listed companies, with banking sector limits at 30% and selected strategic sectors subject to lower thresholds. The non-voting depositary receipt structure that has been developed for selected companies provides an alternative mechanism for foreign exposure beyond the direct ownership limits, but the broader policy question of whether to relax the underlying limits has not yet been resolved.
The Ministry of Finance has indicated that the foreign ownership policy will be reviewed during 2026, with the outcome to inform the framework that operates during the upgrade implementation period. The review will need to balance the policy objectives that have historically supported the foreign ownership limits, including domestic control of strategically important sectors and the development of domestic institutional investor capacity, against the international investor demands and the broader economic benefits of expanded portfolio investment flow.
The Vietnamese banking sector reform progress has been an important supporting factor in the upgrade case. The non-performing loan resolution framework has improved, the capital adequacy ratios across the major commercial banks have strengthened, and the regulatory supervision capability of the State Bank of Vietnam has matured to a degree that international institutional investors have recognised. The banking sector accounts for a significant share of the eligible market capitalisation, and the credibility of the sector’s regulatory framework affects the broader investor perception of the Vietnamese market.
The longer-term implications for Vietnamese economic development are real. The FTSE upgrade, combined with the broader policy direction toward integration with international financial markets, will accelerate the development of domestic institutional investor capacity, the broadening of the listed company universe, and the maturation of the financial services sector. The interaction with the broader manufacturing and trade development policies will be substantial, with the financial market development supporting the capital formation that the manufacturing investment cycle requires. The implementation success will depend on the execution of the remaining regulatory adjustments and on the disciplined development of the supervisory framework as the international investor base expands.
