Beyond FTSE: an upcoming capital market opportunity

Beyond FTSE: an upcoming capital market opportunity

Vietnam’s market reclassification could open the door to a new wave of international capital. Dr. Christian Kamm, president of Kamm Investment Inc., explains how turning this opportunity into sustainable growth will depend on Vietnam’s ability to further modernise market infrastructure, deepen the corporate bond market, and more besides.

There is little doubt that Vietnam has made significant strides in the last decades warranting the change from FTSE frontier market status to secondary emerging market status. Reforms to modernise Vietnam’s capital markets include the 2024 phase out of the pre-funding requirement and a new trading system more equipped for a large foreign institutional investment community.

Dr. Christian Kamm

With the ambitious goal of a high-income status by 2045, Vietnam is poised to experience an investment climate rarely seen.

A perusal of the most current countries that have experienced a change in FTSE rating would include Nigeria. In late 2025, Nigeria was placed on a watch list by FTSE due to the small size of the overall stock market as well as challenges in the market infrastructure that would hinder foreign investment interest. But in early 2026, it was decided by the FTSE Equity Board that Nigeria was improving the access for foreign investment and stabilising its currency, and the rating of frontier market was re-instated.

Considerable capital flows have entered the market this year, pushing the market up 71 per cent year to date as well as considerable long-term performance over the last five years of over six times. But the most interesting data point presented by the World Bank is that in the first half of 2026, 89 per cent of all trades on the stock exchange were by local investors, meaning only 11 per cent were from foreigners.

Nigeria’s stock market experience offers some clues to further ensure the success of Vietnam’s markets. Without question, in Nigeria, a stable currency and easier market access for foreign capital has caught the eye of the FTSE committee to ensure reclassification. And with reclassification, foreign capital must enter the market through frontier market funds.

Other capital inflow generally follows. As Vietnam has made significant strides in allowing foreign investors easier access to the markets much like Nigeria, economic reforms have also promoted a more stable currency in Vietnam.

But the most striking data point concerns the local investor participation. This closely resembles Vietnam, in which it is common knowledge that the local investors account for as much as 99 per cent of daily volume of trading. This is a clear signal that foreign investor participation, when increasing, will have a profound effect on stock market performance. Essentially, these new investors will provide liquidity to propel that market forward and, in some cases, provide a more stable investment environment.

General estimates of initial foreign capital inflows due to the reclassification to FTSE emerging market status range from $3-5 billion. As a percentage of total market capitalisation of the Vietnam stock market, such inflows seem relatively negligible. But we cannot be fooled by a seeming low amount of official capital inflow.

Changing the landscape

These very inflows do not tell the whole investment story. Often, these initial foreign inflows are followed by significant additional passive capital inflows, institutional investors which see a green light to investing in Vietnam. Specifically, as foreign investment commitment grows, it breeds interest from other foreign capital sources which, in turn, invest. In a term, investing in Vietnam becomes a self-fulfilling prophecy.

It is possible, in the near term, total increase in foreign investment flows would exceed 2-3 times the original amount. And over the long term, such a classification will most assuredly change the whole investment landscape of the Vietnam markets in a very positive way.

The effect of the FTSE reclassification will be greater than previously anticipated for the following reasons. First, with a tremendously high local investment participation rate of 99 per cent, any foreign capital inflow will have a magnifying effect than if the percentage was much lower. Second, foreign passive investment flows will follow the initial wave of capital flow investment and most likely will dwarf the $3-5 billion range. Third, a more constructive investment climate will promote further local interest and therefore cause stable gains in the stock market.

But, as always, the effects and intentions of government policies must be considered. The work the government has done to this point must be commended. Further infrastructure spending on market modernisation, as an example, must be accomplished to continue to attract further investment interest.

Economic policies supporting and promoting foreign investment must be implemented. Transparency and trust must continually be built between the institutional investor and the government. Also, a stable currency and interest rate environment are essential to attractive and maintaining foreign investment interest.

There is no question that global investors appreciate a vibrant stock market. But these same institutional investors expect a well-functioning, progressive corporate bond market in conjunction with the stock market. Over many years, I have spoken to many institutional investors that are reluctant to invest in Vietnam due to the lack of a sophisticated bond market.

The Vietnam government must promote and maintain a vibrant and sizeable corporate bond market. To fully integrate into the global financial system, Vietnam must have a bond market characterised by significant opportunities to attract consistent foreign investment flows. With further development of a substantial bond market, global institutional investment interest will most likely increase.

And, most importantly, local investors must be investors and not traders. The future investment climate can be quite conducive to a buy-and-hold investment strategy. For years, the Vietnam stock market has been characterised by a trading mentality that often waxes and wanes with every rumour. It has acted, for many, more like a casino than a wealth creator. This must change.

Although traders can profit with a sophisticated investment strategy, the real, consistent profits will be made by investors – willing to invest for the medium and long term. Traders should become investors – allocating their investment funds to various progressive stock opportunities and developing a balanced long-term investment approach.

The reason for a needed change in mentality is simple: when capital inflows are ensured over time, a medium to long-term investment strategy is the most favourable investment strategy. Capital inflows deepen capital uses, solidify additional jobs and economic activity, and fund business expansions – which all lead to a more stable, upward stock market.

VIR