Vietnam's stock market was officially added to the FTSE Russell Emerging Markets Index on Monday, a significant achievement following years of reform efforts aimed at drawing in foreign investment. FTSE Russell estimates that this inclusion could channel as much as $6 billion in capital flows into the country. Since 2018, Vietnam had been on the index's watchlist, awaiting its elevation to a market tier shared by economic heavyweights like China and India.

The VN Index opened 0.54% higher on Monday, driven by banking stocks, before giving back some of those early gains. Expectations surrounding this upgrade have reignited foreign investor interest in Vietnamese equities. According to data from the Ho Chi Minh City Stock Exchange, foreign investors were net buyers of 2.7 trillion dong ($104 million) worth of shares last week, though their cumulative position still reflects net selling of around 91 trillion dong. However, Thomas Nguyen, global markets head at SSI Securities, Vietnam's second-largest brokerage, cautioned that the initial fervour may temper once the dust settles. "I expect the market to remain relatively subdued as we approach 2027," Nguyen said. The transition will occur in four phases stretching into 2027: a 10% inclusion in September, followed by a 20% increase in March, and then 35% each in June and September of next year.

"Attention should pick up again as we approach the next batch of inclusions in March, and given the larger weight, local investors may feel a more pronounced impact," Nguyen added. Following the upgrade, asset manager Vanguard Group plans to raise its investment in Vietnam to roughly $2.5 billion over the coming years. Still, concerns linger over foreign ownership caps and limited free-float ratios at some companies. This milestone has also rekindled speculation that Vietnam could see a status upgrade from MSCI in the future. Investors believe that the central counterparty clearing mechanism, expected to be rolled out in 2027, could help Vietnam better satisfy MSCI's market-access criteria. Nguyen stressed that the introduction of this clearing mechanism is vital for Vietnam's bid to secure an MSCI index upgrade down the line. "FTSE looks at ease of market access, while MSCI focuses on market size," he explained. "That's why central counterparty clearing is so important."