From Frontier to Emerging: Vietnam’s Long Road to a Stock Market Upgrade

Vietnam’s stock-market upgrade is a story about plumbing, not prices. For most of the past decade the country had the growth, the listed companies and the retail investors that an emerging market needs; what it lacked were settlement rules a global custodian could accept, a trading system that did not crash when volumes rose, and a regulator willing to let foreigners own more of the banks. Each fix took years longer than promised. This article explains how the market began, what the index providers actually demand, why the Korean trading system took thirteen years, what the retail boom and 2022 crash revealed about market integrity, and what the upgrade is worth now that the first half of it has arrived. It is part of the Vietnam Company Stories hub.

How did Vietnam’s stock market start, and why did it stay “frontier” for so long?

The Ho Chi Minh City Securities Trading Center opened on 28 July 2000 with two stocks, the refrigeration firm REE and cable maker SAM, trading three sessions a week. The Hanoi exchange followed in 2005 and the UPCoM board for unlisted companies in 2009. By the time equitised state enterprises and private groups filled the boards, the market’s rules had hardened around a set of foreign-investor restrictions that index providers could not accept.

The first boom came fast. The VN-Index rose from around 300 in early 2006 to a peak near 1,170 in March 2007 as equitisation IPOs and foreign money poured in, then lost two thirds of its value through 2008. MSCI placed Vietnam in its frontier index, a category for markets too small, illiquid or restricted for the main emerging-market benchmark, and the country stayed there while its economy grew from roughly USD 100 billion to more than USD 450 billion. In September 2018 FTSE Russell put Vietnam on its watch list for possible promotion to “secondary emerging”, the lower of its two emerging tiers. It remained on that list for seven years.

The reasons were consistent across every annual review. Foreign investors had to deposit the full value of a purchase before placing the order, which no other market of comparable size demanded. Foreign ownership was capped at 30% for banks and, by default, 49% for other companies, and many of the most attractive stocks had reached their limits. Settlement was a two-day cycle in which the risk fell on investors rather than on a central counterparty. Company information was published mainly in Vietnamese. None of these was a mystery; all were slow to change because each required a different ministry, regulator or law.

What exactly do FTSE and MSCI want before they upgrade a market?

A market that a large foreign institution can trade without taking risks it does not take elsewhere. Concretely: delivery-versus-payment settlement so an investor does not have to pre-fund, the ability to open accounts and move currency freely, transparent and enforceable foreign-ownership rules, a functioning central counterparty or equivalent, and disclosure in English.

FTSE Russell’s criteria for secondary emerging status had, by 2018, been met on every count except two: settlement, which failed because of pre-funding, and the treatment of failed trades. MSCI’s assessment is broader and its bar higher; its annual market-accessibility review listed nine areas where Vietnam fell short, including foreign-ownership limits, the absence of an offshore currency market, limited English disclosure, the need for a licence to open an account and the lack of an omnibus-account structure that lets a fund manager trade for many clients through one account.

The distinction between the two providers matters commercially. FTSE’s emerging indices are tracked by an estimated USD 1 billion or so of passive money that would flow to Vietnam on inclusion, along with actively managed funds benchmarked to them. MSCI Emerging Markets is tracked by trillions of dollars; estimates of the passive and active inflow from an MSCI upgrade have ranged from USD 5 billion to more than USD 10 billion, several years of net foreign buying compressed into a reclassification window. Vietnam has understood since 2018 that FTSE was the achievable step and MSCI the prize, and that the prize required reforms that touch bank ownership and currency policy, which are not in the securities regulator’s gift.

Why did the KRX trading system take thirteen years?

Because a project contracted in 2012 with the Korea Exchange to replace the Ho Chi Minh exchange’s ageing Thai-built platform ran into changing specifications, the merger of the two exchanges under a single holding company, pandemic travel restrictions and repeated failed test runs. It finally went live on 5 May 2025, at which point the exchange had been trading on the old system for a quarter of a century.

The cost of the delay was visible in early 2021. When retail trading volumes surged, the old system could not process more than about 900,000 orders a day and began freezing during sessions; the exchange had to halt afternoon trading and restrict order sizes. The fix came not from Korea but from FPT, whose chairman Trương Gia Bình offered to rebuild the matching engine in 100 days on the Hanoi exchange’s software; the story is told in our piece on FPT’s software business. It worked, and it bought the KRX project another four years.

What KRX brings is less the trading engine than the features the index providers wanted: intraday settlement capability, the technical basis for a central counterparty, same-day trading of purchased shares, and the potential for new products such as short selling and options. Most of those still need separate regulation. The system’s arrival removed an excuse rather than delivering the reforms, but the excuse had been used for a decade.

What happened when the pre-funding rule was dropped?

Circular 68, issued by the Ministry of Finance in September 2024 and effective from 2 November 2024, allowed foreign institutional investors to buy shares without having the cash in their account first, with the broker taking the settlement risk and the investor paying by the settlement date. It was the single change FTSE had been waiting for, and it was implemented at the level of brokerage rules rather than law, which is why it could finally be done quickly.

The mechanics shift risk to the securities firms. A broker that accepts an order from a foreign fund without pre-funding must have the capital to cover a failed settlement, so the reform favoured large, well-capitalised houses such as SSI, VNDirect, HSC and Techcombank’s TCBS, and prompted a wave of capital raising across the industry. It also requires a mechanism to sell on shares if an investor fails to pay, which the regulations provide. In practice, large foreign institutions have used the facility cautiously and through the biggest brokers, which is what the regulator intended.

The irony is that the reform arrived during the heaviest foreign selling in the market’s history. Foreign investors were net sellers of Vietnamese equities in 2024 to the tune of roughly VND 90 trillion, on the order of USD 3.6 billion, as the dollar strengthened and Vietnamese rates stayed low. Removing pre-funding did not reverse that; it addressed the conditions for the next inflow rather than the current outflow.

What did the 2021 retail boom and the 2022 crash reveal?

That Vietnam’s market is dominated by domestic individual investors, that it can be manipulated at scale by listed-company owners, and that the regulator was, until 2022, slow to act. About 1.5 million new trading accounts were opened in 2021 alone, the VN-Index passed 1,500 in early 2022, and then the arrests began.

The “F0” investors — first-timers who opened accounts during lockdown — pushed daily turnover on the Ho Chi Minh exchange above USD 1 billion, higher than Singapore on some days. Retail investors account for 80–90% of trading, and their enthusiasm for penny stocks and margin lending created the conditions for abuse. In March 2022 Trịnh Văn Quyết, chairman of the FLC Group, was arrested for manipulating the shares of his own companies and for selling 74.8 million FLC shares in January without registering the sale; he was later sentenced to 21 years. In April the Tân Hoàng Minh group’s bond sales were declared fraudulent, and in October the Vạn Thịnh Phát arrests triggered the run on SCB. The index fell about a third in 2022, one of the worst performances of any market in the world.

The institutional consequences were unusual. The chairman of the State Securities Commission, Trần Văn Dũng, was dismissed in May 2022 and the head of the Ho Chi Minh exchange, Lê Hải Trà, was expelled from the party for failing to police the FLC trades. New leadership, tighter margin rules, mandatory disclosure of large shareholder trades before execution and the 2022 bond decrees followed. For index providers, the episode cut both ways: it exposed weak enforcement, and it showed the state willing to punish it.

How close is Vietnam now, and what would the upgrade be worth?

Half-way. FTSE Russell announced in October 2025 that Vietnam would be reclassified from frontier to secondary emerging with effect from September 2026, subject to the reforms remaining in place, and index-tracking flows have been estimated in the low billions of dollars over the phase-in. MSCI kept Vietnam in its frontier index at its 2025 and 2026 reviews while acknowledging progress.

The domestic market that the money will arrive in is much larger than the one FTSE began watching in 2018. Total trading accounts passed 10 million in 2025, about a tenth of the population; market capitalisation on the three boards has been in the range of 60–70% of GDP; and the VN-Index reached new highs above its 2022 peak during 2025. Large listings such as Vinpearl in 2025 and the IPO of TCBS added investable weight, and the government has set targets for further equitisation sales, though those have missed deadlines for a decade.

What remains is the harder list. A central counterparty for equities, which shifts settlement risk from brokers to a clearing house, is scheduled for 2027 and needs the Vietnam Securities Depository and Clearing Corporation to be capitalised and licensed for the role. Omnibus accounts, which let a global fund manager trade for hundreds of clients through one structure, need new rules. Foreign-ownership limits on banks, the largest sector by index weight and the one where Vietcombank alone would dominate, are a political question that the State Bank has resisted reopening. And English-language disclosure, mandated for large companies from 2025 under a phased schedule, is a matter of company practice as much as regulation.

What are the risks around the upgrade?

That inflows concentrate in a handful of stocks and push them to unsustainable valuations; that a market still 80% retail and heavily margined reacts violently to any reversal; that enforcement relapses once the reclassification is secured; and that MSCI never follows, leaving Vietnam with a smaller prize than expected and the same structural constraints.

Concentration is the immediate issue. The Vietnamese benchmark is top-heavy: Vietcombank, the Vingroup companies, BIDV, FPT, Hòa Phát and a few others make up a large share of free-float-adjusted value, and the foreign-room problem means index buyers will be funnelled into those with space. The property-heavy weighting is itself a risk after the 2022–2023 developer crisis, and the market’s dependence on the health of Techcombank and other banks tied to real estate makes the index a leveraged bet on one sector.

Governance risk has not disappeared. The FLC and Vạn Thịnh Phát cases were extreme, but market manipulation of small caps remains common, and the regulator’s capacity to police 1,600 listed and registered companies is limited. Disclosure quality varies widely. A market that has spent seven years working toward an upgrade has every incentive to keep standards high through the effective date; the test is what happens after.

What does the upgrade mean for founders, investors and operators?

For founders, it opens a listing route to a much deeper pool of capital and raises the bar on governance and disclosure that a listed company must meet. For investors, it changes the buyer base from Vietnamese retail and frontier specialists to global emerging-market funds, with the volatility and valuation shifts that implies. For operators, it makes the local exchange a serious option for exits, employee equity and acquisition currency.

The IPO pipeline is the clearest opportunity. Vietnamese companies that had looked to Singapore or the United States for listings — VinFast chose Nasdaq in 2023 — now have a domestic exchange that global funds will be obliged to buy into. Reforms in 2025 shortened the gap between IPO and listing to weeks rather than months and allowed pre-listing bookbuilding closer to international practice. Consumer, technology and financial companies with foreign room are the natural candidates; a business such as Mobile World, permanently full to foreigners, gains less than one with room to fill.

For investors the practical adjustment is in what drives prices. Frontier-market money is patient, small and specialist; emerging-market money is large, benchmarked and moves with global risk appetite. Vietnamese stocks will trade more on Federal Reserve decisions and China flows than they have, and less on local news. Foreign ownership caps mean the premium for stocks with room will persist, and the discount for those without may widen. And the regulatory calendar — MSCI’s annual June review, the 2027 central-counterparty target, any change to bank ownership limits — becomes part of the investment case.

For operators and CFOs the upgrade is a governance mandate. Companies that want to benefit need English-language disclosure, independent directors who are genuinely independent, related-party transactions that survive scrutiny and investor-relations functions that answer questions from London and Boston. Those are the standards that every listed company in an emerging market is eventually held to, and the companies that adopt them first will capture a disproportionate share of the inflow.

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