Analyzing the Potential for the Upgrade of Vietnam's Stock Market: Market and Institutional Perspectives

Context and Upgrade Objectives

An analysis of the upgrade process of Vietnam’s stock market reveals that the country is facing a strategic opportunity to improve its position on the global financial map. Currently, Vietnam’s stock market is still classified as a “Frontier Market” according to the criteria of two major international rating agencies: MSCI and FTSE Russell. Meanwhile, the clearly defined goal is to move up to the classification of a “Secondary Emerging Market.”

This upgrade is not only a matter of classification, but also carries significant practical implications. Specifically, an upgraded market will be able to attract additional passive investment capital from large exchange-traded funds (ETFs), improve market liquidity, and enhance the credibility and transparency of the market in the eyes of international investors. At the same time, it contributes to the sustainable development and integration of Vietnam’s economy, especially in the context of rapid digital transformation and globalization.

Being upgraded is not merely symbolic—it holds profound practical meaning: attracting more passive capital flows from ETFs worth tens of billions of USD, increasing market reliability, improving liquidity, and accelerating the sustainable development of the digital economy.

Assessment Criteria of MSCI and FTSE Russell

The two largest global market classification agencies – MSCI and FTSE Russell – both base their evaluations on three main criteria:

1. Market size and liquidity.

2. Openness to foreign investors.

3. Market operational efficiency and transparency.

Below is a detailed analysis of each criterion, the relevant conditions, and the current status of the Vietnamese market.

1. Market Size and Liquidity: Significant Improvements, But Not Yet Meeting Emerging Market Standards

Achieved:

• Market Capitalization of Vietnam’s Stock Market:

  In 2023, market capitalization reached approximately 90% of GDP, equivalent to over VND 6 quadrillion.

  As of December 2, 2024, the total market capitalization of Vietnam’s equity market (including HOSE, HNX, and UPCoM) was nearly VND 7.04 quadrillion, equivalent to approximately 64.3% of the estimated 2024 GDP (around VND 10.94 quadrillion).

• Liquidity:

  The average daily trading value reached VND 20–25 trillion during 2021–2022, placing Vietnam among the top markets in Southeast Asia.

  In 2023, average liquidity dropped to around VND 17.52 trillion per session, a 13% decrease from 2022, but still 129% higher than in 2018.

  In 2024, the average daily trading value increased to approximately VND 21.1 trillion, a 19.9% rise compared to 2023.

• The number of listed companies continues to grow steadily, particularly on the HOSE exchange:

  As of October 31, 2024, the HNX exchange had 312 listed stocks with a total market capitalization of about VND 319 trillion, slightly down from the end of 2023.

  HOSE remains the largest exchange, accounting for more than 93.77% of the total market capitalization of listed stocks. The number of listed companies on HOSE is currently estimated at over 1,200 (based on a total of 1,589 across all exchanges, and the number on HNX and UPCoM).

Still Required:

• A more stable and deeper liquidity, not solely dependent on large-cap stocks (blue chips), but also expanding to mid-cap stocks.

  
  

• An increase in free-float ratios among many large-cap companies.

Regional Comparison:

Thailand and Indonesia were able to achieve an upgrade with liquidity levels comparable to or even lower than Vietnam’s current levels. However, they succeeded in establishing stable capital flows and a stronger structure of institutional shareholders—elements that Vietnam still lacks.

2. Openness to Foreign Investors: Progress Made, but Legal Barriers Remain

Achieved:

• The government has allowed foreign ownership limits (foreign room) to be lifted up to 100% in many sectors that are not on the conditional business list.

  
  

• The derivatives market, launched in 2017, has been operating stably with growing liquidity.

  
  

• Several legal reforms, such as the new Securities Law (2020), have provided a clearer regulatory framework.

  
  

Still Required:

• Foreign ownership remains limited due to industry-specific regulations, which require inter-agency coordination to resolve.

  
  

• The pre-funding mechanism still exists—foreign investors must deposit funds before executing trades, which violates MSCI standards.

  
  

  However, this pre-funding requirement—which forces foreign investors to have sufficient funds in their accounts before placing buy orders—was officially removed in Vietnam via Circular No. 68/2024/TT-BTC, effective from November 2, 2024. Under this regulation, foreign institutional investors are allowed to place buy orders without having funds available at the time of order placement, provided that securities firms assess and ensure their payment capability.

  
  

  Nonetheless, the implementation of a non-pre-funding mechanism across the entire market is still in progress. Securities companies need to upgrade their technology systems, operational processes, and risk assessment protocols to meet these new requirements. Some major firms, such as SSI, have prepared the necessary resources and infrastructure to implement this mechanism. However, full market-wide adoption will take more time to complete the technical and legal components.

  
  

  Removing the pre-funding requirement is a major step forward in Vietnam’s efforts to upgrade its stock market classification, as it enhances the market’s appeal to foreign investors. However, to achieve this objective, close coordination is needed among regulatory agencies, securities firms, and related stakeholders to ensure safe and effective implementation.

  
  

• Vietnam still lacks nominee accounts for foreign investors—a standard feature in other emerging markets.

Regional Comparison:

Malaysia and the Philippines are notable examples in the region that have successfully achieved market upgrades through strong legal reforms, particularly in opening up to foreign investors. Both countries have removed foreign ownership limits to the maximum extent permitted and fully implemented transparent nominee account systems. Nominee mechanisms allow foreign investors to hold securities through intermediaries without registering under their individual names. This resolves legal and privacy-related concerns.

Specifically, since 2005, Malaysia has allowed unrestricted foreign ownership in many non-sensitive sectors, and by 2009, it had fully implemented the nominee mechanism for both equities and bonds. The Philippines, despite having certain sectoral restrictions, established an internationally recognized nominee framework as early as 2010, which enhanced transparency and investor protection.

In contrast, Vietnam has yet to establish a complete legal framework for nominee accounts. Although the 2020 Securities Law introduced the concept, no detailed implementing guidelines have been issued, leading to practical implementation challenges. Moreover, foreign ownership remains restricted by the list of conditional sectors under the Investment Law, leaving foreign investors exposed to legal risks and ownership limitations. In this regard, Vietnam lags behind neighboring countries by at least 3–5 years.

3. Accounting Standards and Information Transparency: Transition Underway, But Still Inconsistent

Achieved:

• The Ministry of Finance has issued a roadmap for the adoption of International Financial Reporting Standards (IFRS) since 2020.

  
  

• Several large enterprises have voluntarily applied IFRS in their consolidated financial statements.

  
  

• Information disclosure on HOSE and HNX has gradually improved in terms of speed and content quality.

Still Required:

• Mandatory application of IFRS for large-cap listed companies.

  
  

• Standardization of financial reporting in English for companies in the VN30 or VN100 indices.

  
  

• Strengthening the audit and supervision capacity of independent auditing firms in accordance with international standards.

Regional Comparison:

Indonesia has made IFRS adoption mandatory since 2012, which has significantly enhanced the confidence of foreign investors. Meanwhile, Vietnam remains in the “preparation” phase and has not yet implemented IFRS on a wide scale.

4. Trading Infrastructure and Technology: Undergoing Upgrades, But Lagging Behind

Achieved:

• The Korean KRX trading system has been tested and partially implemented—expected to resolve order congestion issues and support T+2 settlement.

  
  

• The derivatives trading platform on HNX has been operating stably with consistent growth in liquidity.

Still Required:

• A complete transition to T+2 or even T+0 settlement in the near future to avoid settlement delays, which negatively impact liquidity valuation.

  
  

• Implementation of short-selling and intraday trading—both of which are mandatory criteria under MSCI for emerging markets.

  
  

• Enhancing security, processing speed, and cross-border trading surveillance capabilities.

Regional Comparison:

Thailand has implemented T+2 for years and is currently piloting T+1 settlement. Vietnam remains significantly behind, which undermines confidence among foreign investors.

Overall Assessment

From a comparative perspective with markets like Malaysia, Indonesia, and the Philippines, Vietnam has substantial potential but still faces institutional and operational bottlenecks.

Vietnam has made notable progress in:

• Market size and liquidity.

• Legal reforms to increase foreign ownership limits and improve transparency.

• Preparation for IFRS transition.

However, to meet the upgrade criteria, the following must be addressed:

• Meaningful transformation of trading and technology infrastructure.

• Removal of foreign ownership restrictions and implementation of the nominee mechanism.

• Acceleration of mandatory IFRS adoption.

• Enhanced investor protection policies and increased transparency through English-language disclosures.

If these reforms are implemented decisively within the next 12–24 months, Vietnam’s stock market upgrade is entirely achievable and realistic. Conversely, further delays will cause Vietnam to miss the momentum shared by regional peers—and lose out on tens of billions of dollars in passive investment flows from global funds.

Conclusion

Upgrading the market classification is not merely an investor expectation—it is a national strategic objective that requires inter-agency coordination among the Government, Ministry of Finance, State Securities Commission (SSC), and market operators such as HOSE and VSD. Vietnam is currently at the “final starting line” in ASEAN, while countries like Malaysia and Thailand are already nearly a decade ahead.

With sufficient political will and concrete action, Vietnam’s stock market can rise to a higher tier on the global financial map. But to achieve this, we cannot afford to delay any further.