Vietnam has set a goal of achieving double-digit economic growth in the coming years. How critical is the role of capital markets in supporting this high-growth ambition, compared with traditional bank-based financing?

Khoi Vu

Vietnam’s traditional bank-based financing system has been a key driver of economic growth over the past three decades. However, as the country moves into the next phase of development, capital markets will need to play a much more prominent role.

Vietnam currently has a relatively high debt-to-GDP ratio, and by the end of 2025 many banks had reached the upper limit of their loan-to-deposit ratios. This constrains the ability of the banking system to continue expanding credit at the pace required to support double-digit growth.

Well-developed capital markets, encompassing both equity and debt, can serve multiple objectives. These include mobilising long-term funding for the economy, which remains a key limitation of bank-based financing; improving transparency and corporate governance standards; and offering individual investors a broader range of options to generate and grow their assets and wealth.

Long-term capital is particularly critical for financing large-scale projects in both the public and private sectors. Projects such as the North–South high-speed railway can take years to construct and decades to generate returns, making them ill-suited to short-term bank funding and more dependent on deep and mature capital markets.

To attract large-scale, long-term capital from global institutional investors, what reforms in Vietnam’s capital markets do you see as the most urgent and impactful?

Based on our discussions with global institutional investors, there are two reforms that would be especially impactful if implemented in the near term.

The first is the adoption of a central counterparty (CCP) clearing model within the stock market’s settlement mechanism. A CCP framework helps to reduce counterparty risk and improve operational efficiency. In its 2025 report, MSCI also highlighted the need for improvements in Vietnam’s trade settlement cycle and noted its interest in seeing progress in this area.

The second priority relates to reforms that enable greater participation by global investment banks and securities brokerages seeking to expand their presence in Vietnam. The involvement of international investment banks would materially enhance investors’ access to information, improve market liquidity, and strengthen execution capabilities, all of which are critical for supporting large-scale foreign investment.

How do you assess the current readiness of Vietnam’s capital markets to accompany a period of sustained high growth?

Vietnam’s capital markets remain at an early stage of development, although important progress has been made. By the end of 2025, the stock market reached a significant milestone, with total market capitalisation surpassing $400 billion and average daily trading value exceeding $1 billion. This places Vietnam among the more liquid capital markets in Southeast Asia.

That said, further enhancements are required to attract stable, long-term funding to support sustained high growth. Current market liquidity is largely driven by retail investors, who account for more than 90 per cent of trading volume. While this reflects strong domestic participation, it also increases volatility and market risk.

In addition, the structure of the market remains relatively concentrated. Banking stocks account for around 40 per cent of market capitalisation, while property stocks represent roughly 30 per cent. Broadening the range of listed companies to include more firms from sectors such as industrials, consumer goods, and IT would help diversify the market and better align it with the long-term growth dynamics of Vietnam’s economy.

Market upgrade remains a key milestone for Vietnam. What is your assessment of Vietnam’s prospects for reclassification, and how significant would such a move be in unlocking new foreign capital inflows?

J.P. Morgan estimates that an upgrade of Vietnam to emerging market status by FTSE could result in fund inflows of approximately $1.3 billion. These flows could be even stronger if additional foreign investors begin to increase their exposure to Vietnam following the reclassification.

The scale of inflows would depend largely on the implementation of the reforms already discussed, particularly those aimed at easing market restrictions, enabling greater foreign participation and improving overall market mechanisms.

Progress in these areas would strengthen investor confidence and enhance Vietnam’s attractiveness within global portfolios.

What strategic priorities would you recommend for Vietnam to ensure that its capital markets can effectively support and sustain a double-digit growth trajectory?

Continuing the reform roadmap remains a key priority. This includes the deployment of the CCP model; improvements in corporate governance and investor communication, such as the introduction of English-language disclosures and IFRS reporting standards; broader market participation through the attraction of more foreign institutional investors; and greater diversity in market constituents, with an emphasis on improving both the quantity and quality of listed companies.

In addition, reforms aimed at achieving investment-grade sovereign credit ratings would be important, particularly for public infrastructure development. Vietnam is currently rated below investment grade by major agencies. An upgrade to investment grade, defined as BBB- by S&P or Baa3 by Moody’s, would significantly reduce the government’s borrowing costs.

Vietnam currently has around $36 billion in foreign debt. A reduction of 100 basis points in interest costs would lower annual interest expenses by approximately $360 million, or close to $60 million. Such savings would enhance fiscal flexibility and support increased government bond issuance to finance long-term investment needs, including public infrastructure ventures.