Why are foreign investors net sellers ahead of Vietnam’s stock market status upgrade?

Part of the recent heightened selling pressure from foreign investors in the Vietnamese stock market might come from funds tracking frontier markets, while funds tracking emerging markets will only start buying gradually once the market status upgrade officially takes effect.

Truong Hien Phuong, a senior director at KIS Vietnam Securities, made the remarks in response to The Investor's question of why foreign investors being net sellers ahead of Vietnam’s market status upgrade.

After net buying nearly VND8 trillion ($303.06 million) in July, foreign investors turned to heavy net selling in August and September, unloading more than VND30 trillion and VND23 trillion, respectively. In total, they net sold over VND86 trillion ($3.26 billion) in the first nine months of the year.

Notably, this strong selling came just before FTSE Russell’s market classification review scheduled for October 8, Vietnam time.

Phuong explained that if Vietnam's market status is officially upgraded in this review, the market will attract significant inflows from emerging market-tracking funds, which might be dozens of times larger than frontier market-tracking funds.

But he noted that many funds are currently concerned about exchange rates which directly affect investment costs. They are also waiting for a market status upgrade before officially entering the market. Meanwhile, existing investors such as Dragon Capital and VinaCapital continue to maintain a high allocation for shares in their portfolios.

From another perspective, Nguyen The Minh, director of individual clients research and development at Yuanta Vietnam Securities, said he believes foreign selling could continue even after the upgrade.

He predicted that net selling will intensify at the end of Q3 due to portfolio rebalancing and profit-taking after a period of VN-Index strong rallies, USD/VND exchange rate pressures, and USD-VND interest rate differentials.

Minh expects foreign capital inflows will improve in Q4 as foreign exchange pressures ease and the Fed is expected to cut rates further in October and December. He emphasized that the upgrade may have more of a psychological impact on investors rather than an immediate surge in foreign net buying.

Vietnam has been working for years to secure an upgrade from "frontier" to "emerging" market status, with regulators pushing through a series of reforms in 2024-2025.

The Ministry of Finance's (MoF) Circular 68/2024/TT-BTC and Circular 18/2025/TT-BTC allow foreign institutional investors to trade without having 100% of funds pre-deposited.

In addition, in early May 2025, the KRX information technology system officially went into operation, which is a unified, seamless platform, integrating the functions, stock exchanges, and Vietnam Securities Depository and Clearing Corporation.

The new system is considered the basis for implementing the central payment counterparty (CCP) mechanism for the Vietnamese stock market - a fundamental solution to solve the margin problem for foreign investors.

The Ministry of Finance also issued Decree 245/2025/ND-CP, amending Decree 155/2020 to strengthen transparency, protect investors, and attract more foreign capital.

Experts consider this a long step forward, approaching international practices and serving the goal of getting Vietnam's market status upgraded.

The State Bank of Vietnam's (SBV) Circular 03/2025 and Circular 25/2025 make it easier for foreign investors to open or expand indirect investment accounts, thereby facilitating capital inflows.

The SBV has required commercial banks and foreign bank branches to promptly and synchronously implement the provisions in these circulars so as to minimize the account opening time for foreign investors conducting indirect investments.

Circular 25 removed the regulation requiring consular legalization in the application for opening a payment account of a foreign investor.

The types of documents that foreign investors can use for identification are expanded. Instead of a passport, foreign investors can use other documents proving their identity issued by a competent foreign authority.

Another major change is that banks and foreign bank branches do not have to monitor the validity period of the identity documents of account holders and related persons during the use of payment accounts.

At the same time, banks and foreign bank branches do not have to keep and update all signature samples and seal samples (if any) of registered customers for checking and comparison during the use of payment accounts.

Circular 25 also allows banks and foreign bank branches to use the SWIFT system to open and use payment accounts for foreign investors to carry out indirect investment activities in Vietnam.

It allows opening foreign currency payment accounts by electronic means. The circular does not require biometric information to be verified when withdrawing money or making payment transactions by electronic means on payment accounts.

Authorities emphasize that market upgrading is not the final destination but part of a broader journey to build a modern, transparent, and globally integrated capital market.

The Market Upgrading Roadmap sets a short-term goal of securing FTSE Russell’s secondary emerging arket status in 2025, while maintaining that position long term.

Looking further ahead, Vietnam aims to meet MSCI emerging market criteria and achieve FTSE advanced emerging market status by 2030.