Vietnam on track for EM upgrade

VIETNAM’S path towards emerging market (EM) status gathers pace, and fresh scrutiny over free float is unlikely to derail the journey, according to new analysis that keeps the outlook for equities firmly constructive.

Concerns around real free float, subdued market turnover and the pace of regulatory reform came back into focus after FTSE Russell says it will halt additions, deletions and weight changes for Indonesian stocks in its March 2026 index review.

According to Maybank Investment Banking Group Research (Maybank IBG), the risks flagged for Vietnam are containable and do not alter its positive stance on the market’s upgrade trajectory.

“Free-float related risk for Vietnam is manageable,” the brokerage states, pointing to the fact that Vietnam’s shareholder disclosure thresholds are already broadly aligned with international norms and even stricter in the banking sector.

While FTSE Russell notes that Indonesia’s situation “has introduced a new risk for the Vietnamese market”, highlighting the need for Vietnam to “ensure free float disclosure and shareholder transparency in line with global standards” and to “strengthen the surveillance process to flag suspicious trading activities”, Maybank IBG argues that the minimum free-float requirement is only slightly lower than in neighbouring countries.

More importantly, the research house stresses that market reclassification is a national priority.

“Given the strong determination and regulatory progress observed by FTSE over the past two years, the upgrade is clearly not the ultimate goal of Vietnam’s leadership,” it says.

With upgrade high on the agenda, it expects authorities to address any concerns raised by index providers and global investors.

Upgrade roadmap

That message is reinforced in a recent webinar hosted by Maybank IBG with FTSE Russell policy director Wanming Du to discuss Vietnam’s upgrade roadmap.

While she welcomes the timeliness of regulatory changes such as the global broker model, Du also flags developments in recently upgraded markets on index weights and eligible stocks, and again points to Indonesia’s free-float issues as a potential risk spillover.

FTSE Russell underlines that the three important regulatory changes of Vietnam’s upgrade pathway are: the introduction of a non-prefunding mechanism (effective November 2024); the removal of public disclosure requirements for failed trades; and the implementation of the global broker model (February 2026).

Market reform

Ultimately, however, Maybank IBG says the strongest driver is the commitment of Vietnam’s leadership to market reform.

The index provider is set to receive investor feedback on the global broker model during its March 2026 review, after which it will announce the implementation schedule.

Maybank IBG expects inclusion to happen in three to five tranches beginning in September 2026.

Based on data as of Dec 31, 2024, FTSE Russell estimates Vietnam’s weight in the FTSE Emerging Markets All Cap Index at about 0.4%, with 28 stocks eligible for inclusion.

Potential passive inflows are estimated at US$800mil to US$1bil, while active inflows could be up to five times larger.

Over time, both index weight and the number of eligible stocks are likely to increase, mirroring the trajectory of previously upgraded markets such as China A-shares, Saudi Arabia and Kuwait.

Looking beyond the initial upgrade, Maybank IBG expects further regulatory enhancements, particularly on foreign ownership limits, free-float disclosure and the establishment of a central counterparty clearing mechanism.

These steps should support a higher market weight and broader stock inclusion within the FTSE EM basket.

On the macro front, the brokerage describes inflation as benign and foreign-exchange pressure as easing significantly. It expects 12-month deposit rates to stabilise at around 6%-6.5% over the next six to 12 months.

The recent flare-up in the interbank market, it says, is driven by seasonal cash demand ahead of Tet, an ongoing gold rush and temporarily higher transactions among small household businesses due to new taxation policies. “We believe this phenomenon will be short-lived,” Maybank IBG notes.

Stabilising flows

Meanwhile, foreign flows show signs of stabilising. Regional outflows in other Asean markets, volatility in global commodity and equity markets and profit-taking pressure lead to net foreign sales of US$350mil in the first quarter of 2026 (1Q26).

However, that marks a sharp slowdown compared with the quarterly average of US$1.2bil in 2025. Following the implementation of the global broker model in early February 2026, FTSE Russell is expected to announce the inclusion schedule for Vietnam in its March 2026 review.

Maybank IBG anticipates US$6bil to US$8bil of foreign inflows over the coming years as the upgrade story plays out.

It maintains its target for the VN-Index at 2,000 points, implying a financial year 2026 estimated price-to-earnings ratio of 14.5 times, roughly in line with the five-year average.

Corporate fundamentals add to the supportive backdrop.

Earnings rose 44% year-on-year (y-o-y) in 4Q25, driven by a ramp-up in domestic demand and resilient export momentum.

Steel surged 78% y-o-y on infrastructure spending, real estate rebounded 183% in the south, and energy earnings doubled on higher local production.

Banks posted 11% growth on strong credit expansion and improved non-performing loans, retail doubled on artificial intelligence-related consumption, and beverages climbed 22%. For full-year 2025, earnings jumped 28% y-o-y, the highest since 2021.

Given the high base, Maybank IBG has trimmed its 2026 market earnings growth forecast slightly to 16%, led by banks at 19%, retail at 23%, air logistics at 32% and steel at 27%.

It expects a normalisation towards more sustainable, broad-based expansion across sectors as regulatory reform and foreign participation gather pace.