Upgrading the stock market, activating a new level

The Vietnamese stock market is facing an important moment in its development journey: the roadmap to upgrade from a frontier market to an emerging market. This is not only a technical change in classification, but also a strategic leap forward, opening a door for deeper connection with global capital flows especially large-scale investment funds in the FTSE and MSCI indices.

The upgrade will activate a "new level" of market standards, transparency, operational capacity and medium and long-term capital attraction capacity. This is an opportunity for the Vietnamese stock market to affirm its position in the region, while creating a boost in transforming capital structure, enterprise quality and legal corridor according to international standards.

Progress of the upgrading target

The roadmap for upgrading the Vietnamese stock market is no longer a statement but is existing through a series of specific reform actions, with a clear roadmap and progress. From the end of 2024 to now, the policy system, infrastructure and operating mechanism have been perfected at the institutional, technical and market practice levels. This reflects the determination to change the market state from close- edge to flowing according to the standards of international rating organizations such as FTSE Russell and MSCI.

First, perfecting institutions and legal framework for market operation

From November 2024 to mid-2025, many important circulars will take effect in turn and will be amended in the direction of approaching international standards:

Circular 68/2024/TT-BTC, effective from November 2, 2024, is the first step in removing the "non-prefunding" requirement, an important criterion for FTSE Russell.

Circulars 18/2025/TT-BTC and 14/2025/TT-BTC respectively amended regulations on registration, storage, clearing and payment of securities, while creating a legal corridor for counterfeit selling activities, T+0 transactions and more developed market operations.

Circular 03/2025/TT-NHNN issued on June 16, 2025 clearly stipulates foreign investor accounts according to the indirect account model, removing existing barriers that caused Vietnam to be "suspended" in the March assessment period.

Second, activate modern technical infrastructure and standardize operations

On May 5, 2025, the KRX system was officially put into operation after a long period of preparation, marking a leap forward in terms of technical infrastructure, allowing the implementation of operations such as T+0 transactions, fake sales and real-time risk management. This is a mandatory condition for the market to operate effectively in an emerging state.

Third, affirming political determination and market expectations

On July 2, 2025, at the regular press conference of the second quarter, the Chairman of the State Securities Commission officially affirmed that the upgrading target in 2025 is a key task of the entire industry. At the same time, the Government is completing the amendment of Decree 155/2020/ND-CP, aiming to provide clearer regulations on foreign ownership ratio, while establishing a model of a Concentrated Clearing House (CCP) for the core market and derivatives - a key factor to meet the requirements of MSCI and FTSE.

Fourth, the final stage and the expectation of promotion

September 2025 will be the time for FTSE Russell's annual assessment. If Vietnam is approved for upgrading, the official decision is expected to be announced on October 7, 2025. In case of success, the Vietnamese market could be put into the secondary emerging market basket in 2026.

Also in 2026, if the Decree on foreign ownership and the CCP system are fully implemented, Vietnam can qualify MSCI to consider including them in the upgrade monitoring list - opening a large-scale, stable and long-term international capital attraction cycle.

A series of bottlenecks have been removed

The market upgrade process cannot take place in one go. That is a comprehensive reform journey, requiring policy stability and synchronous coordination from institutions, infrastructure to operating mechanisms. Over the past half year, Vietnam has made substantial progress, gradually removing each key technical bottleneck as required by international rating organizations.

Remove the biggest bottleneck: The non-prefunding mechanism officially takes effect

November 2, 2024 marked a major turning point when Circular 68/2024/TT-BTC of the Ministry of Finance officially took effect, allowing stock trading without requiring foreign investors to have enough money before placing an order - also known as the non-prefunding mechanism. This means that foreign institutional investors can trade on the same day as T+0 and pay on the following days (T+1 or T+2), approaching international standards and eliminating one of the biggest barriers that has caused Vietnam to be delayed in upgrading for many years.

The removal of the prefunding mechanism is a prerequisite for FTSE Russell to consider upgrading Vietnam to the Secondary Emerging Market, while opening the door for MSCI to re-evaluate the possibility of joining the upgrading list in the near future.

Deploying a modern technical platform - KRX System officially operates

On May 5, 2025, the Ho Chi Minh City Stock Exchange (HOSE) officially operated the KRX information technology system - one of the prerequisites to improve technical capacity and improve trading experience.

KRX not only shortens payment time and resolves criteria for the T+2 Payment Round, but also significantly improves market monitoring, risk management and large order processing capabilities. More importantly, this system allows the implementation of new trading operations such as T+0, regulated counterfeit and international standard deposits in the near future - which are prerequisites for MSCI to be considered for upgrading.

Institutional coordination Breaking down legal and technical bottlenecks

The success of the above policies does not come from a single agency, but is the result of close coordination between the Ministry of Finance, the State Bank, the State Securities Commission and related units. A series of legal documents have been issued, amended and standardized according to the correct roadmap:

Circular 03/2025/TT-NHNN guides the opening of indirect investment accounts in Vietnamese Dong for foreign investors under a simplified mechanism, shortening processing time.

Circular 14/2025/TT-BTC standardizes the process of opening a storage account from a personal identification number (CIC) and transferring ownership of the name to gradually replace the traditional form of storage - clearing.

Circular 18/2025/TT-BTC amends the regulation on storage - payment, adding a mechanism for information disclosure according to international standards.

Circular 68/2024/TT-BTC (mentioned above) officially implements non-prefunding.

All of these policies are built in an open, friendly direction towards foreign institutional investors, contributing to breaking down technical and legal bottlenecks and bringing Vietnam closer to the upgrade goal.

New expectations

Expect a comprehensive removal from infrastructure to payment mechanisms.

The operation of the KRX system not only helps the Vietnamese stock market shorten the time for processing orders and payments, but also significantly overcomes trading errors - the main cause of technical failures. This is especially important in the context of increasing market liquidity and the constantly increasing demand for high- frequency transactions by domestic and foreign investors.

However, KRX is just the beginning. Another fundamental factor that is expected to be completed soon is the establishment of a central clearing company (CCP) - the unit directly responsible for the entire clearing payment process, instead of the current decentralized mechanism. According to the roadmap, CCP will be put into operation in 2026, helping to complete the technical infrastructure structure, professionalize payment processes and approach the highest standards of the emerging market.

At the same time, VSDC and related members such as securities companies and deposit banks will also be granted certificates of eligibility to provide clearing - payment - deposit services, ensuring continuity in the payment process throughout the market.

Clarifying the non-prefunding transaction mechanism according to new regulations

One of the key technical and legal bottlenecks that has been resolved is the non-prefunding (NPF) mechanism for foreign institutional investors. Circular 68/2024/TT-BTC not only officializes this mechanism, but also details the responsibilities of relevant parties in case the investor fails to supplement enough money after the matching order.

Accordingly, foreign investors (organized) must register a trading code at VSDC, and open an indirect investment capital account at a depositary bank and a securities trading account at a securities company. If a securities company is allowed to provide NPF services, investors can place an order without having to pay in advance. Payment responsibilities will be completed after the matching order according to the internal time frame of each exchange-traded company.

In case the investor cannot supplement the money in time, the securities company has the right to sell the shares transferred to its self-adesked account on the system, in order to compensate for the shortfall. Investors will be responsible for all arising losses and costs. This is a step forward to help the market access a professional trading mechanism, while limiting system risks thanks to a two-way protection mechanism: flexible for investors and protection of securities.

The new trading model, as presented in the diagram, also demonstrates the connectivity and close supervision from the entities: depositors - securities companies - VSDC - CCP - Securities Trading Department. This is an important foundation for international ranking organizations to evaluate the completion of the Vietnamese market in the upgrading journey.

The goal is not far away

Since September 2018, FTSE Russell has included Vietnam in the upgraded monitoring list from the frontier market to the Secondary Emerging market. This is the first step in recognizing Vietnam's reform efforts in perfecting the mechanism for operating the stock market and increasing access for foreign investors.

Up to now, FTSE Russell classifies stock markets around the world into 4 main groups:

Developed (Developed Market).

Advanced Emerging.

Secondary Emerging.

Frontier (Border Market).

According to the latest classification table (updated to March 2025), Vietnam is still in the Frontier group. However, FTSE has recognized Vietnam's significant efforts through the implementation of a non-pre-depository deposit (NPF) trading mechanism - one of the key technical conditions for upgrading. This is a point that many markets have previously been "stuck" with when considering the access criteria of foreign investors.

Along with that, Vietnam has implemented a series of reforms related to opening indirect investment capital accounts, expanding foreign ownership limits, and simplifying administrative procedures for international institutional investors. These improvements reflect the strong determination of the management agency in meeting international standards and creating favorable conditions for long-term capital flows to participate in the market.

The next FTSE review will take place in September 2025. This is a turning point opportunity for Vietnam to officially be upgraded to a secondary emerging market, thereby expanding access to global index baskets, attracting large capital flows from ETFs and institutional investors around the world. The upgrade not only brings cash flow effects, but also measures the transparency, operational efficiency and investment attraction of the entire economy.

has met 8/9 criteria for upgrading

Vietnam has not only been included in the upgraded monitoring list but also recorded a clear progress in perfecting market infrastructure, meeting most of FTSE Russell's criteria for secondary emerging markets. As of the March 2025 review, most of the important criteria have been fully met by Vietnam, from market monitoring, brokerage, transparency, transaction costs to depositing activities.

According to FTSE Russell's assessment report, Vietnam is assessed as "achieving" 8/9 main criteria including:

Management agencies proactively monitor the market, ensuring transparency and stability.

There are no significant barriers to capital flows, no sanctions or excessive restrictions for foreign investors.

The brokerage system operates effectively and competes healthily.

Transaction costs are controlled, reasonable and transparent, reflecting the true nature of market competition.

transparency has been significantly improved, especially in transaction information, market reporting and real-time data release.

The storage center and storage system operate stably, safely, and with high quality.

The payment cycle has met T+2 standards, in accordance with current international practices.

There is only one criteria that has not been officially assessed, which is Rare Transaction failures, which is a technical aspect of clearing payments. However, with Vietnam preparing to deploy the CCP (Central Counter Party Clearing) model and the new trading system KRX, it is expected that this criterion will be completed and put into assessment immediately after the system is put into stable operation in the coming time.

Vietnam's prospects after FTSE upgrades

Vietnam's expected upgrading from a frontier market to a secondary emerging market in the review period in September 2025 and officially taking effect in March 2026 will open up significant opportunities for international capital flows. According to estimates, the capitalization of the VN-Index as of July 11, 2025 reached more than 238 billion USD, equivalent to some countries with an allocation ratio in the FTSE Emerging Markets Index such as Chile (187 billion USD) or Qatar (168 billion USD). With the current capitalization platform, Vietnam is fully likely to be allocated a proportion of about 0.7% if it is officially added to the index basket.

Notably, with an allocation of 0.7% in the FTSE Emerging Markets Index basket, a typical ETF fund such as Vanguard FTSE Emerging Markets - currently priced at around $83 billion - alone has been able to allocate nearly $581 million to the Vietnamese market. This is just one of many passive and proactive investment funds that are monitoring FTSE indices as a basis for disbursement. In fact, experience from previously upgraded markets such as Saudi Arabia, Pakistan or Romania shows that foreign capital flows often increase sharply right from the time the upgrade was announced and continue to increase after officially taking effect, not only from index funds but also from funds that proactively care about reform and long-term growth potential.

The market structure of Vietnam according to FTSE's classification as of June 30, 2025 is also showing clear diversity and attraction in key industry groups. In the FTSE Vietnam All-share basket, the real estate group leads with a proportion of 22.7% and a capitalization of nearly VND 274.1 trillion, followed by banks accounting for 20.5% and the financial services group accounting for 14.4%. If we consider the FTSE Vietnam basket alone - the narrower basket, serving some specialized funds - the proportion of the real estate group accounts for 35.3%, showing the level of strong capital flow into large enterprises in the industry. Some other industry groups also have significant contributors such as banking (10.6%), financial services (13.4%), industry (14.9%) and food - beverage (5.7%).

The proportion of sub-sectors not only shows the interest of international cash flow but is also an important basis for the market to reposition opportunities for domestic and foreign investors. With the market size increasingly approaching emerging standards, the portfolio of qualified stocks is increasing in both quantity and quality, the Vietnamese stock market is expected to attract stable, long-term capital flows and have a clearer orientation in the post- upgrade period.

Lessons learned from countries that have been upgraded

Experience from previous markets shows that the positive impact of upgrading does not stop at changes in technical classification but also creates a big boost for the stock market developments in the medium and long term. According to statistics from FTSE and fund management organizations, most countries upgraded to the Secondary Emerging market group have recorded a significant increase in stock indexes within 1-2 years from the time of the official upgrade announcement.

A typical case is Qatar - a country that was included in theWatchlist since September 2013 and officially upgraded in September 2015. After being gradually disbursed between September 2016 and March 2017, the Qatar General Index has grown to 511% up to now. This is a very strong increase, reflecting the confidence of international capital flows in the newly improved market structure and the ability to absorb capital of the host country's financial system.

Similarly, Kuwait is one of the countries with the longest preparation process for upgrading, from September 2008 to September 2018, when it was officially disbursed. During this 10-year period, the Kuwait market has undergone many extensive reforms in operating mechanisms, laws, accounting standards and especially transaction infrastructure. Thanks to that, since the time of disbursement, the Kuwait stock index has increased to 74%, clearly demonstrating the effectiveness of the well-prepared roadmap before the upgrade.

The cases of Saudi Arabia and Romania are also very notable. Saudi Arabia the largest economy in the Middle East was officially upgraded in March 2018 and disbursed from March 2019. After this process, the thenwul All share index increased by 42%. Meanwhile, Romania a country with a similar market size and development level to Vietnam has been on the watch list since September 2019 and upgraded in September 2020. In just about a year after that, the BET index increased to 70.4%.

The above figures confirm that the FTSE upgrade is not only a symbolic event, but also a real boost to help improve valuations, increase liquidity, attract long-term capital flows and improve expectations of global investors. That is the reason why many markets have proactively prepared many years before being officially upgraded, while taking advantage of the time immediately after the announcement to implement comprehensive reform policies.

capitalization growth - a reliable indicator after upgrading

If the stock index shows short-term expectations of investors, market capitalization is a measure reflecting the real strength and accumulation of the market in the medium and long term. Observing the capitalization developments in markets that have been upgraded by FTSE shows that most have recorded a clear upward trend, starting from the period before the official announcement of the upgrade and lasting for many years afterwards.

For example, the Kuwait market with a preparation period of up to 10 years has witnessed a breakthrough in capitalization from the $60 billion mark to about $150 billion, an increase of more than 2.5 times since 2018, when FTSE began to disburse at a new scale. This reflects an improvement not only in stock prices but also in volume, liquidity and investor confidence in participating in the market after major mechanism barriers have been removed.

Similarly, Qatar also recorded very impressive capitalization growth, especially in 20172020 the period when the market was strongly disbursed and benefited from international capital flows. From below 100 billion USD, Qatar's market capitalization has skyrocketed to over 180 billion USD, before adjusting according to the cycle.

In Chile's case, although it did not increase too much, it maintained stability in the long term. This is proof that, after upgrading, if the market maintains institutional reform, improves the investment environment and corporate governance, the increase in capitalization can be preserved instead of temporary.

Vietnam currently has a capitalization of about 250 billion USD - approaching emerging markets such as Kuwait or Qatar at the time of disbursement. According to international organizations, if upgraded in September 2025, Vietnam will have access to new ETFs with a scale of up to billions of USD. At that time, cash flow will not only help increase scores, but also change the scale and position of the Vietnamese market on the global financial map.

Careful preparation from trading infrastructure, CCP model, expanding foreign ownership ratio, standardizing information disclosure, along with the growing openness of the economy, are factors that create a solid foundation for Vietnam to enter a new growth cycle of capitalization. This is not only an opportunity for the financial market, but also a strategic step forward to improve national competitiveness in attracting long-term investment capital.

Stock group expects to benefit and investment opportunities after upgrading

In the context that the Vietnamese stock market is approaching the time when it can be upgraded to the group of emerging markets of class 2 according to FTSE Russell's classification, we believe this is an important time for investors to review their portfolios and prepare a strategy to welcome capital flows.

Based on the latest updated data up to July 2025, some industry groups and stocks are likely to benefit clearly, including:

The group of large-cap stocks with room for foreign ownership has a high proportion in the FTSE index basket such as HPG, VIC, VHM, VNM, VCB, SSI...

The securities industry group, with the expectation of double benefits from increased liquidity, margin expansion and improved investor sentiment.

The group of stocks meets the criteria of capitalization, liquidity, and free-float ratio well, and has the potential to be newly or increased by passive funds.

From the experience of upgraded markets, we see that stock price movements often increase sharply in the period before and after being added to the index portfolio. Therefore, proactively restructuring the portfolio, focusing on foreign-invested codes and meeting index criteria will be a suitable strategy for this period.

We believe that if successfully upgraded, the Vietnamese stock market will have more conditions to improve the quality of capital flows, increase transparency, attract institutional investors and aim for more sustainable development in the medium and long term.