Illustration courtesy of Vietcap.

Vietnam’s benchmark VN-Index has seen persistent foreign net selling for more than a month. During the first trading week of February 2026 (February 2-6), foreign investors sold a net VND6 trillion ($231.33 million) across the three exchanges (HoSE, HNX and UPCoM), following net sales of more than VND6.7 trillion.

The trend has been in place for three consecutive years. Foreign investors recorded net outflows of more than VND22 trillion (VND848.2 million) in 2023, rising sharply to VND92.47 trillion in 2024 and nearly VND121 trillion ($4.67 billion) in 2025.

Minh said the core driver behind the sustained outflows is Vietnam’s high cost of capital, estimated at above 15%, significantly higher than in many regional markets. Moreover, rising interbank rates have pushed borrowing costs higher, increasing capital costs and making equity valuations less attractive.

Capital costs have also been lifted by the government’s push to raise funds for infrastructure investment and expanded public spending, which has driven up government bond yields - a key benchmark for determining the cost of capital.

From a valuation perspective, higher capital costs, including both debt and equity costs, directly reduce corporate valuations, particularly under discounted cash flow (DCF) models, where higher discount rates lower present values.

Global financial market developments have further pressured foreign flows, with investors closely watching the upward trend in Japanese government bond yields.

According to estimates by Goldman Sachs, every 10 basis point increase in Japanese government bond yields could push U.S. Treasury yields and other global bond yields higher by around 2-3 basis points, raising capital costs worldwide.

“In the past, when Japanese interest rates were extremely low or near zero, investors tended to borrow yen to invest in higher-yielding markets,” Minh said. “As Japanese rates rise, carry trades are unwinding, prompting capital to flow out of many emerging and frontier markets, including Vietnam.”

He added that foreign capital is likely to rotate towards developed markets such as the United States, where high-growth technology stocks dominate, or back to Japan’s equity market, making a near-term reversal of outflows from Vietnam unlikely.

Key conditions for a turnaround

Minh said a return to net foreign buying would hinge on several critical factors, foremost among them a more aggressive easing cycle by the U.S. Federal Reserve. In an optimistic scenario, if the Fed cuts interest rates at least twice in 2026, capital could flow back into emerging and frontier markets, including Vietnam.

Lower U.S. rates would reduce the appeal of dollar assets and create room for Vietnam to pursue a more accommodative monetary policy, he said.

Japanese interest rates are another key variable. If yen rates remain around 2-2.5%, foreign capital could still find its way back to Vietnam. However, a rise towards 3% would significantly reduce the likelihood of a rebound in inflows.

Domestic policy measures also play a decisive role. Stable exchange rate management is seen as critical to maintaining confidence among both foreign portfolio and direct investors.

Regulatory initiatives are expected to be equally important, particularly Circular No. 08, which not only addresses barriers highlighted by FTSE Russell in its September 2025 review but is also expected to facilitate and potentially trigger stronger foreign inflows into Vietnam’s stock market.

Market status upgrade prospects remain another potential short-term catalyst. Over the longer term, Vietnam will need to continue improving its sovereign credit rating to lower capital costs and expand access to international capital.

At the same time, the market must accelerate the listing of high-quality assets, further ease foreign ownership limits, and increase free-float ratios - conditions seen as essential to attracting large global funds managing tens of billions of dollars.