Vietnam’s equity market is enjoying its strongest rally in eight years, with the benchmark VN-Index climbing 41% in 2025 as the economy expanded by 8%. The country is on the verge of being upgraded from frontier to secondary emerging market status by FTSE Russell, a move that could take effect as early as September pending confirmation in its upcoming review.
Another potential catalyst could come from MSCI, which may place Vietnam on its watchlist for future inclusion in its emerging-market indices. However, a full upgrade is widely seen as years away.
Despite the bullish momentum and improving regulatory reforms, foreign investors have been net sellers. According to LSEG data, overseas equity outflows reached a record $5.1 billion in 2025, leaving foreigners holding roughly 14.5% of a $332 billion market.
Why Foreign Cash Is Leaving
Several structural issues are tempering global enthusiasm. Investors cite tariff risks tied to shifting U.S. trade policy, foreign ownership limits that inflate share prices for international buyers, currency constraints, and liquidity concerns.
Vietnam’s growth has partly benefited from trade rerouting from China, but that dynamic is vulnerable to changes in Washington’s tariff stance. Global asset managers say they see more liquid and transparent alternatives in markets such as Taiwan, South Korea and China.
Foreign ownership caps remain a persistent obstacle. In some cases, international investors must pay 20–30% premiums for access to locally listed firms, dampening appetite even during strong rallies.
The Vingroup Factor
A major distortion in the market is the dominance of Vingroup, controlled by billionaire Pham Nhat Vuong. The conglomerate’s stock surged an extraordinary 736% last year and, together with subsidiaries, now accounts for more than 20% of the benchmark index.
Vingroup spans real estate, steel, railways, energy and entertainment, and floated electric vehicle maker VinFast on Nasdaq in 2023. While its net profit doubled last year, the stock trades at a lofty price-to-earnings ratio of 96, raising concerns about valuation sustainability.
For foreign funds focused on diversification and liquidity, heavy index concentration in a single conglomerate complicates exposure. Many brokers and fund managers reportedly avoid recommending the stock, citing valuation risks and market sensitivity.
Liquidity and Structural Constraints
Vietnam Enterprise Investments Limited, managed by Dragon Capital, recently saw more than two-thirds of shareholders vote to participate in a tender offer, reflecting liquidity pressures and persistent discounts to net asset value. Such discounts are often seen as symptomatic of structural inefficiencies in local markets.
While authorities say major global institutions are preparing to invest, the reality is more cautious. Even with a potential FTSE upgrade, some analysts argue the liquidity and governance improvements required for sustained capital inflows are still incomplete.
Why It Matters
Vietnam is Southeast Asia’s fastest-growing economy and increasingly central to global supply chain diversification. Strong foreign capital inflows could lower funding costs for companies, stabilize the currency, and reinforce growth momentum.
Yet persistent outflows suggest global investors remain unconvinced that structural reforms have kept pace with market performance. If foreign capital continues to exit despite upgrades and rallies, it may signal deeper concerns about governance, concentration risk, and policy predictability.
Analysis
Vietnam’s paradox is clear: booming growth and surging stock prices on one hand, but declining foreign participation on the other. The rally appears domestically driven and concentrated in a few large names, particularly Vingroup, rather than broadly supported by global institutional capital.
An FTSE upgrade could trigger short-term passive inflows, but sustained engagement will depend on deeper reforms especially easing foreign ownership caps, improving liquidity, and broadening index composition.
In the meantime, Vietnam’s market risks becoming a high-growth story with limited foreign conviction: attractive in theory, but structurally constrained in practice.
With information from Reuters.
