Why Vietnam’s Stocks Are Falling After the FTSE Upgrade

Phased index inclusion, continued foreign selling and weaker domestic trading have tempered expectations of an immediate market rally.

MARKET INSIDER — Vietnam’s promotion to FTSE Russell’s secondary emerging-market category has yet to deliver the rally many investors anticipated. The VN-Index fell 1.68% during the first week after the upgrade, while trading activity weakened and foreign investors remained net sellers.

The disappointment reflects a mismatch between a gradual change in international index membership and expectations of immediate buying. Emerging-market inclusion is being implemented in stages through September 2027, while investors continue to weigh financing costs, currency risks and corporate earnings.

By the end of morning trading on September 29, the VN-Index stood near 1,779, down 1.44 points and below the closely watched 1,800 level.

Key Highlights

• The VN-Index lost 1.68% in its first week after the upgrade, with foreign net selling exceeding VND2.7 trillion.
• FTSE inclusion starts at 10% of the planned investability weighting, with the remaining stages scheduled for 2027.
• A sustained recovery will depend on earnings, liquidity and financing conditions alongside index-related buying.

The upgrade brings gradual buying

Vietnam’s reclassification became effective on September 21. FTSE Russell’s implementation plan removes Vietnam from its frontier index series in one stage but introduces it into its global equity indexes over four stages.

These percentages refer to the phased application of investability weights. They are not guaranteed percentages of a fixed cash inflow. Actual purchases depend on assets tracking the relevant benchmarks, market prices and portfolio implementation. FTSE also plans to assess index replication after each stage before proceeding with the next.

That structure helps explain why reclassification can coexist with short-term selling. Frontier-focused funds may reduce their holdings while emerging-market trackers initially require only a relatively small allocation.

It also means the effective date is not necessarily the day all related transactions occur. Funds and other investors can adjust positions around a scheduled benchmark change.

Expectations had already influenced prices

Vo Kim Phung, research director at BETA Securities, told Dan Tri that investors had anticipated the upgrade well before it took effect, limiting its immediate impact.

Kafi analyst Huynh Anh Huy similarly described the subsequent trading as consistent with a “buy the rumour, sell the fact” pattern.

An anticipated event can attract buying in advance. Once it occurs, some investors take profits while others wait for the next reason to increase exposure. A favorable structural development can therefore be followed by weak prices without becoming economically meaningless.

During the first post-upgrade week, matched-order trading activity fell approximately 20–21%, while overseas investors sold more than VND2.7 trillion net, according to Dan Tri. The combination points to limited buying appetite at prevailing prices. dantri.com.vn

Passive inflows cannot explain the entire market

Huy estimated potential FTSE-related passive inflows at approximately $2 billion, compared with roughly $3.6 billion of foreign net selling earlier this year.

Those figures illustrate scale, but they cover different periods and categories. A prospective estimate of benchmark-driven purchases cannot be directly netted against historical selling to forecast the next market move.

Foreign trading includes passive funds, active managers and other investors with different objectives. Index-related purchases can occur even when aggregate overseas trading remains negative.

Active managers also have discretion. An upgrade broadens Vietnam’s potential investor audience, but it does not compel every emerging-market fund to invest. Portfolio managers still assess valuations, earnings, governance, market access and currency exposure against opportunities elsewhere.

Consequently, daily foreign net-selling data cannot establish that index funds have failed to buy.

Domestic liquidity remains a constraint

The source report also highlights financing pressures at home.

Huy cited estimated margin lending of approximately VND435 trillion alongside Ho Chi Minh Stock Exchange trading turnover around VND16 trillion per session. These are analyst-cited figures rather than a complete measure of marketwide liquidity risk.

Margin debt is an outstanding balance, while turnover is a daily flow. Their comparison does not reveal when forced selling might occur. It does, however, draw attention to the difficulty of absorbing position reductions when trading activity is subdued.

Higher funding costs can discourage new leveraged purchases and make investors less willing to hold positions through a prolonged decline. A thinner market can then experience larger price moves from relatively modest changes in buying or selling.

The report’s references to unusually high deposit rates also require care: selected offers do not represent the rate available to every depositor or the funding cost of the entire banking system.

Global conditions still influence valuations

Analysts interviewed by Dan Tri pointed to rising U.S. yields, tighter Federal Reserve policy and a stronger dollar as additional obstacles to foreign investment.

The economic mechanism is straightforward. Higher returns on dollar assets raise the hurdle for investing in emerging-market equities. Currency weakness can also reduce an overseas investor’s return even when a stock rises in local-currency terms.

These pressures help explain why improved market access may not immediately produce higher valuations.

However, neither foreign selling nor financing conditions alone explain every stock’s performance. Sector earnings, company-specific developments and the influence of large constituents on the VN-Index also matter.

Likewise, the argument that corporate fundamentals remain intact needs confirmation from financial results. A liquidity explanation should not substitute for examining profits and balance sheets.

What would support a recovery?

Third-quarter earnings will provide an important test. Investors will look for evidence that revenue growth translates into profits and cash flow, with manageable financing and credit costs.

A recovery in turnover would also matter, particularly if accompanied by broader participation across stocks. Gains concentrated in a handful of large companies may lift the index without improving most portfolios.

Sustained foreign buying could strengthen sentiment, as KIS Vietnam executive Truong Hien Phuong argued in the source report. It is a useful signal, but it is not a necessary condition for every market recovery: domestic demand can also support prices.

Beyond short-term trading, the next FTSE inclusion stages remain relevant. Their contribution will be easier to assess through fund holdings, actual portfolio adjustments and continued market-access improvements.

Vietnam’s upgrade expands its place in international benchmarks. Whether that translates into stronger share prices depends on the price investors pay, the profits companies deliver and the capital available to support the market.