Vietnam's stock market will be reclassified from "frontier" to "secondary emerging" by FTSE Russell from September 21 this year, subject to an interim review in March 2026.

During this period, inflows are projected to continue building, with foreign capital likely to be driven primarily by active funds, Nga said in a Finance Street talk show on Monday.

CEO of Vietcombank Fund Management Company Limited (VCBF) Nguyen Thi Hang Nga. Photo courtesy of the Finance Street talk show.

After September, passive exchange-traded funds (ETFs) tracking the FTSE Emerging index are expected to begin deploying. Vietnam could attract an estimated $500 million to $1 billion in such passive inflows.

Active funds are also projected to increase allocations further if compelling investment opportunities emerge. Domestic investors, meanwhile, may look to lock in gains during this period should the market have rallied strongly beforehand, according to Nga.

She noted Vietnam’s stock market remains dominated by domestic retail investors. Such flows tend to be short-term and highly speculative, often driven by sentiment and leverage pressures, making the market more prone to sharp volatility.

Foreign investors account for roughly 9-10% of total market turnover. In the past, overseas flows often set the tone for the market. In recent years, however, domestic capital has taken the lead, reducing the market’s reliance on foreign participation.

In 2026, tighter controls on unofficial foreign-exchange trading, more limited avenues for gold investment, and further U.S. rate cuts are expected to ease depreciation pressure on the Vietnamese dong, helping to curb foreign selling. Coupled with the prospect of a market upgrade, Nga expects offshore inflows to play a more supportive role in Vietnam’s equity market.

Institutional flows, meanwhile, are driven largely by proprietary trading desks at securities firms and domestic exchange-traded funds. Local open-ended equity funds remain relatively small, with assets of about $1.5 billion at the end of 2025 and tend to trade less frequently, limiting their market impact.

Still, investor interest in mutual funds has been rising, with assets roughly tripling over the past three years. As their scale expands, these funds are expected to play a bigger role in market turnover, helping stocks trade closer to their intrinsic value and contributing to greater market stability.

Upgrading market quality to attract capital inflows

Nga emphasized that foreign institutional investors set high standards for earnings quality, strategic vision and management integrity, as well as financial strength, market capitalization, free float, foreign ownership limits, disclosure transparency, and compliance with international ESG standards.

To attract such capital, she said, Vietnam needs to broaden and upgrade the quality of listed companies, expand market size and diversify sectors in order to sustain and potentially increase the country’s weighting in emerging-market indexes.

“To achieve this, the government should encourage IPOs and new listings through tax incentives to spur a fresh wave of listings, or revive equitization programs and further divest state stakes in state-owned enterprises,” the CEO suggested.

She called for loosening foreign ownership limits and further opening the market to international investors.

In addition, Nga said administrative procedures and market infrastructure, including trading and settlement systems, should be further improved. She stressed the need to enhance transparency and disclosure in line with international standards, provide information in English, and adopt global ESG practices to facilitate foreign participation and bolster the market’s appeal.

Nga added that the fund management industry plays a crucial role in channeling retail savings into capital markets, helping ease pressure on the banking system, particularly as Vietnam’s credit-to-GDP ratio has climbed to nearly 150%.

In recent years, investment funds in Vietnam have increasingly demonstrated their role in improving both the quality of capital flows and investment standards in the equity market, underscored by their strong performance.

After a wave of first-time retail investors poured into highly speculative stocks during the Covid-19 boom - only to suffer heavy losses when the market corrected sharply in 2022 - many accounts remain underwater. In contrast, investment funds generated notably attractive returns over the same stretch.