Market Insider – Vietnam’s equity market is approaching a decisive milestone. On October 8, 2025, FTSE Russell will announce the outcome of its September semi-annual market classification review (following the U.S. market close on October 7). The key question: will Vietnam graduate from Frontier Market to Secondary Emerging Market status?
The possibility of an upgrade has fueled both anticipation and caution. Over the past month, the VN-Index has moved sideways, while market liquidity dropped sharply—from VND 55.6 trillion ($2.2 billion) in August to VND 39.7 trillion ($1.6 billion) in September. Brokerage firm Vietcap remains confident that FTSE Russell will deliver a favorable decision for Vietnam.
Criteria Still Under Assessment
- Settlement Cycle (DvP):
Currently rated “Restricted.” A key hurdle has been the requirement for foreign institutional investors to pre-fund trades at T+0. Vietnam’s Ministry of Finance addressed this through Circular 68 (November 2024), introducing a Non-Pre-Funding (NPF) settlement mechanism. FTSE Russell has monitored its implementation for nearly a year. Vietcap expects this criterion to now qualify as “Pass.” - Settlement Costs for Failed Trades:
Upgraded from “Unrated” to “Restricted” in March 2025. Since NPF took effect, Vietnam has established clear rules on handling failed trades. Only one such case has occurred (December 2024), which was resolved smoothly and validated the new framework. Vietcap believes this requirement can also reach “Pass.”
Remaining Challenges
- Capacity of NPF Providers: Only 10 out of 82 local brokers currently offer NPF services, with a combined maximum capacity of VND 132 trillion ($5 billion). The top three brokers serving foreign investors—led by Vietcap—provide around VND 40 trillion ($1.5 billion) in capacity. This is considered sufficient to accommodate an estimated $1 billion of index-tracking inflows, which are likely to enter in tranches of $200–250 million over 4–5 phases, rather than a single large block.
- Cash Settlement Timing: Index funds often liquidate assets in T+2 markets to fund Vietnam purchases. To mitigate risk, Auto-FX agreements between investors and custodian banks ensure timely funding. Without Auto-FX, funds still have until 3:00 pm T+3 to complete transfers, minimizing default risk.
- Account Opening Procedures: Historically a barrier for foreign investors, account opening has been streamlined under Circulars 03 and 25, with the State Bank of Vietnam removing the requirement for consular legalization. The process now typically takes two weeks, depending on coordination with local custodians.
Has FTSE Decided Yet?
Not yet. Despite speculation, no final decision has been made. FTSE Russell’s process involves Equity Country Classification Advisory Committee (Sept 2, 2025): specialists in trading, custody, and portfolio management and Policy Advisory Board (Sept 18, 2025): senior representatives from global asset managers and asset owners.
Their recommendations are reviewed by the FTSE Russell Index Governance Board, which is expected to make the final call this week. Membership and views of these committees remain confidential.
What Happens if Vietnam Is Upgraded?
If approved, the reclassification will be detailed in FTSE Russell’s September 2025 Annual Market Classification Review, including:
- Implementation timeline (likely 4–5 tranches, first as early as March 2026)
- A list of 10–15 Vietnamese stocks to be included initially
- Vietnam’s projected weightings across relevant FTSE indices
Index funds will begin account registration and trading code applications shortly after the announcement.
Capital Flow Projections
- Passive inflows: at least $1 billion during phased implementation
- Total net foreign inflows: $6–8 billion, potentially up to $10 billion in a bullish scenario, combining both active and passive allocations
- Index weight: Vietnam projected at 0.3% of the FTSE Emerging Markets All Cap China A Inclusion Index, with around 30 stocks qualifying based on size, liquidity, and foreign ownership thresholds
The upgrade would help offset significant foreign outflows—estimated at over $9 billion since 2023.
Outlook
A successful reclassification to Secondary Emerging Market status would mark a transformative moment for Vietnam’s capital markets. Beyond attracting billions in foreign inflows, it would deepen market liquidity, expand institutional participation, and reinforce Vietnam’s role in global emerging market portfolios.
For investors, the FTSE announcement on October 8, 2025 will be a critical turning point to watch.
