Vietnam left off MSCI watch list despite market reforms

Vietnam was not added to MSCI’s watch list for a potential upgrade from frontier market to emerging market status in the index provider’s 2026 Annual Market Classification Review, despite a series of regulatory reforms aimed at improving market accessibility.

MSCI’s review, released on Tuesday (New York time), made no changes regarding Vietnam’s classification, leaving the country outside the watch list that serves as a precursor to a possible market upgrade in future reviews.

The outcome was largely expected after MSCI’s recently-published Global Market Accessibility Review highlighted continued shortcomings in Vietnam’s capital market framework even as authorities advanced several reform initiatives.

According to MSCI, Vietnam made notable progress during the review period, including the introduction of a global broker trading model that allows foreign investors to access the market without opening domestic accounts, the establishment of a Central Counterparty (CCP) clearing company targeted to begin operations in early 2027, and continued implementation of a roadmap requiring English-language disclosures by listed companies.

MSCI also noted regulatory changes preventing companies from voluntarily setting foreign ownership limits below legal thresholds and efforts to ease restrictions across several sectors.

However, the index provider said several structural barriers persist.

Foreign ownership limits continue to affect more than 10% of Vietnam's equity market, while low foreign ownership room remains a significant issue for international investors. MSCI noted that more than 1% of the MSCI Vietnam Investable Market Index is constrained by limited foreign room.

The review also highlighted ongoing concerns over equal treatment of foreign investors, citing incomplete English-language disclosures and restrictions linked to foreign ownership caps. In addition, Vietnam's foreign exchange market remains relatively restrictive, with no offshore currency market and onshore foreign exchange transactions generally required to be linked to securities trades.

MSCI further pointed to administrative hurdles in investor registration and account opening procedures, which still require approval from the Vietnam Securities Depository and Clearing Corporation (VSDC). The index provider also said market regulations and corporate information are not always available in English and, in some cases, lack sufficient detail.

On settlement infrastructure, MSCI noted that Vietnam has introduced a temporary non-prefunding solution but has yet to implement a full non-prefunding framework. The planned CCP model, expected to be operational in 2027, is viewed as a key step toward addressing this issue.

The index provider added that while recent regulatory changes have expanded the scope of off-exchange transactions and in-kind transfers without prior regulatory approval, documentation review processes at VSDC can still take several days.

Vietnam has been pursuing an upgrade to emerging market status for several years, arguing that a reclassification could attract billions of dollars in passive and active foreign investment and improve the market’s international standing.

Being placed on MSCI’s watch list is generally regarded as a critical milestone before any formal market upgrade. While the inclusion does not guarantee an eventual promotion, markets typically remain on the watch list for at least one review cycle before MSCI considers changing their classification.

Vietnam has made “significant progress in meeting the requirements” over the past two years for an upgrade from frontier market to secondary emerging market status, said Wanming Du, FTSE Russell's Asia-Pacific director of index policy.

Speaking on the Index Ideas podcast about Vietnam’s market reclassification in early May, Du said the country had met the final two criteria for secondary emerging market status by introducing the non-pre-funding (NPF) model and implementing a failed-trade management mechanism.

“Additionally, the account opening process - as a foreign investor, you need to open an account - that process has been simplified. So that makes a huge difference in terms of the accessibility criteria,” she was quoted as saying in a transcript released by FTSE Russell on Wednesday.

FTSE Russell on April 7, 2026 confirmed the reclassification of Vietnam from frontier to secondary emerging market status, effective from Monday, September 21, 2026, as the country "meets all criteria" for the status.