Vietnam’s stock market is entering the March review period by FTSE Russell, with expectations that the country could be upgraded to "secondary emerging" market status in early April. The potential reclassification has raised hopes among investors that both domestic and foreign capital flows will increase in the near future.

However, the market is also facing external shocks, including escalating tensions in the Middle East and earlier tariff-related developments, prompting investors to remain cautious.

Nguyen Ky Minh, chief economist at Guotai Junan Securities Vietnam (IVS). Photo courtesy of the Financial Street talk show.

He noted that the upgrade would provide a positive long-term signal for the Vietnamese market. In the short term, however, the change in classification could trigger portfolio adjustments by funds with different mandates, potentially leading to significant outflows, similar to what has been observed recently.

Over the longer term, capital flows are expected to gradually return and grow more strongly.

Minh cautioned that tensions in the Middle East, while widely anticipated, have still caused major market surprises due to escalating military actions among the parties involved.

In such a scenario, energy prices could rise further if Iran blocks oil shipments through the Strait of Hormuz, which handles roughly 20% of global oil supplies, or if major LNG producers such as Qatar halt production over fears of drone attacks.

Rising energy prices could push up raw material costs, fueling inflation and increasing production expenses, potentially leading to broader consequences such as global recession risks, declining international trade, and disruptions to supply chains.

“Vietnam’s market will certainly face strong indirect impacts given the country’s high economic openness,” Minh said. “At the same time, the strengthening of the U.S. dollar and other reserve currencies could put pressure on exchange rates, while interest rates may also rise due to capital flow pressures.”

These factors help explain recent corrections in the stock market, he added.

Nevertheless, Minh said volatility is a normal feature of stock markets. Between 2012 and 2022, Vietnam’s stock market delivered an average annual return of about 9.6% despite significant fluctuations.

“When uncertainties pass, capital will return abundantly to the stock market,” Minh said, adding that investors should take advantage of such periods to buy fundamentally strong stocks at attractive prices.

The IVS economist expects the VN-Index to rise by around 15-20% in 2026.