Will the upgrade take effect until September 2026, and will ETF passive cash flow be able to buy Vietnamese stocks?

Estimated Capital Inflow from Vietnam’s Market Upgrade: Approx. USD 3.4 Billion, Including USD 1.5 Billion in Passive Funds and USD 1.9 Billion in Active Funds

On October 8, FTSE officially announced the upgrade of Vietnam’s stock market status from Frontier to Secondary Emerging, with a conditional interim review. The official FTSE/LSEG document states that the upgrade will take effect on Monday, September 21, 2026.

A preliminary review will take place in March 2026 to re-evaluate Vietnam’s readiness, particularly the progress in opening access for global brokers. Only if this mid-review is satisfactory will the upgrade be fully implemented on the September effective date. FTSE also plans to announce the phased inclusion schedule in its March 2026 statement.

According to SHS Securities, this conditional approach is unprecedented. Previous upgrades, such as those for Kuwait, Romania, and Saudi Arabia, did not include an interim review. Based on available public information, Vietnam may be the first market to receive such treatment from FTSE.

Capital Inflow Estimates

According to HSBC, the total estimated capital inflow from the upgrade is approximately USD 3.4 billion, of which:

~USD 1.5 billion is expected to be passive capital, triggered when Vietnam is officially added to FTSE’s Emerging Market indices.
~USD 1.9 billion is expected to be active capital, which may enter the market earlier in anticipation of the upgrade.

Active funds tend to allocate capital in advance, potentially starting now and continuing until the effective date. In contrast, passive ETFs that track FTSE indices will likely buy in tranches, based on the effective schedule announced post-interim review in March 2026. These ETF funds typically rebalance close to the cutoff date of each inclusion phase.

Reference to Kuwait’s Upgrade Path

To visualize the likely timeline and trading impact, SHS refers to the Kuwait upgrade in 2018, which FTSE split into two phases:

September 24, 2018: 50% inclusion
December 24, 2018: remaining 50%

ETFs executed rebalancing near these exact dates, not immediately after the upgrade announcement. This suggests Vietnam’s passive flows will also start from September 21, 2026 onward, and continue in phases per FTSE’s March 2026 guidance.

FTSE Russell Market Classifications

FTSE classifies stock markets into four tiers:

Developed
Advanced Emerging
Secondary Emerging
Frontier

When a market is upgraded from Frontier to Secondary Emerging, its eligible stocks are removed from Frontier indices and added to Emerging indices during the next scheduled review (typically in March or September), with a minimum 6-month notice period.

For example, in Kuwait’s case, once the upgrade was announced in September 2018, its stocks were no longer part of the Frontier index. The transition is often phased to minimize market disruptions.

This practice helps reduce sell-off pressure on stocks exiting Frontier indices and smooths price volatility for stocks being added to Emerging indices. FTSE ensures that each market is included in only one index group at a time, and changes are usually aligned with periodic rebalancing.

Impact of the Upgrade

The transition from Frontier to Emerging Market status is highly significant:

ETF portfolios are forced to restructure, triggering major foreign inflows and outflows.
Based on prior examples (Kuwait, Pakistan, Morocco), ETF flows generally favor the upgraded market, as inflows from Emerging Market funds often outweigh outflows from Frontier funds.
However, short-term volatility may occur depending on weightings and investor sentiment.

In the long term, an upgrade can:

Improve liquidity
Attract more active institutional investors due to greater market accessibility
Support valuation increases for local stocks to levels more aligned with Emerging Market peers.

Potential Beneficiaries of the Upgrade

According to SHS, the top 12 large-cap stocks that could benefit from the upgrade include:

VIC, VHM, MSN, VNM, HPG, SSI, VND, VCI, GEX, SHB, FPT, VJC

Notably, FPT is a new addition in this updated list. GEX and VJC are also noteworthy due to their good 12-month liquidity and manageable foreign ownership limits, making them suitable candidates for FTSE’s technical filters.