By Gary Harron, Head of Securities Services, HSBC Vietnam

HCM CITY — The Vietnamese economy has defied naysayers, reaffirming its position as a standout performer across frontier and emerging markets, with GDP growth reported at 8.23 per cent in Q3, the highest level since 2011 except for 2022 (14.38 per cent) as the country began to emerge from the Covid pandemic.

We are pleased to see index provider FTSE Russell, a unit of the London Stock Exchange Group, announce the long-awaited reclassification on October 7, after putting Việt Nam on a watchlist since September 2018. The upgrade, effective from September 2026 and subject to an interim review in March 2026 to determine whether enough progress has been made in enabling access to global brokers, is essential to support index replication.

The new status, though conditional, places Việt Nam two steps below the top-ranked 'developed' category and recognises years of coordinated efforts from the government, regulators and market participants. In the six months since the last FTSE Russell report, we have observed consistent and strong engagement among the Vietnamese authorities, foreign investors and market participants to remove the final hurdles for the Secondary Emerging market upgrade. Looking ahead, the authorities have published a plan to reach MSCI Emerging market status by 2030, expected to unlock larger capital flows.

Such upgrades are not symbolic. They influence everything from how analysts and media frame a market to the asset allocation decisions of global investors. For Việt Nam, shedding the frontier label brings both recognition and reassurance. It can profoundly reshape investors’ behaviour and confidence, altering the trajectory of long-term economic development and reducing dependence on any single trading partner.

Rapid progress

Việt Nam’s capital markets have advanced on multiple fronts, both in quantitative and qualitative terms. Market capitalisation and the number of trading accounts have risen more than sevenfold over the past decade. The VN-Index is up by a third this year alone, surpassing its Covid-era highs when optimism over Việt Nam’s role in global supply chains was at its peak.

At HSBC, we have witnessed this growth firsthand, having supported market participants since the market’s inception 25 years ago. HSBC was the first foreign bank to receive a custody licence and today serves as custodian for about half of all foreign institutional investors in Việt Nam. These investors, with a long-term perspective, have worked closely with policymakers to shape reforms in areas such as market access and corporate disclosure.

The Vietnamese authorities have demonstrated an ongoing willingness to listen to feedback and respond dynamically with clear and transparent plans. An example is the State Bank of Việt Nam issuing Circular 25, providing amendments and supplements to existing regulation so the legal framework better reflects international practices of foreign institutional investors. The alignment between ministries and the speed of this response should help deepen investor confidence in the commitment to deliver reform.

This reclassification will further boost reform momentum. Global investors confident in Việt Nam’s future will continue to demand greater alignment with international standards.

Keeping the development momentum

Việt Nam’s stock market has come a long way, but it can go further. Greater participation from long-term institutional investors, such as pension funds that play a large role in more developed markets, would provide more stability and enhance companies’ ability to access capital. So too would a deepening pool of retail investors. It is encouraging that in September this year the Ministry of Finance published ambitious plans to develop the investment fund industry and reshape the investor base. This includes specific policy measures and action plans to support broader objectives of improving institutional participation through policy and legal framework enhancements, wider public education initiatives and strengthened market management and supervision to ensure integrity.

Despite recent improvements in the IPO outlook, the stock market has yet to become as significant a source of corporate funding as its regional peers. According to the World Bank, the capital market lags behind similarly sized rivals, leaving Việt Nam’s economy heavily reliant on bank credit. According to HSBC Global Investment Research, bank lending to Việt Nam’s private sector is more than double stock market capitalisation. This gap makes it an outlier among major ASEAN economies and leaves the economy more exposed to the impact of inflation and higher interest rates.

It is also encouraging that coordinated capital market enhancements published in September aim to simplify the IPO and listing process, with key steps in administrative procedure reforms designed to enhance capital raising efficiency and protect investor rights in the securities market.

 Reform momentum

Over the past year, reforms have addressed key obstacles to upgrading at pace. The State Securities Commission led the removal of the pre-funding requirement, streamlined market entry, upgraded trading infrastructure and mandated English-language disclosures for listed companies, aligned with their own disclosures and reporting in both languages.

Further reforms are underway, with additional significant streamlining of account opening processes mandated and more being implemented. A proposal is already in place to improve global broker access in line with the FTSE assessment outcome, and a central counterparty clearing mechanism is in development; market development and reform momentum are being sustained. The FTSE Russell upgrade marks an important milestone but is by no means the end goal, with action plans in progress to increase listings, support domestic institutions and, of course, achieve further market upgrades.

As its stock market marked its 25th anniversary in July, Việt Nam had much to celebrate. Despite tariff-related turbulence across the region, its commitment to reform is clear. With continued strong policy support and the backing of global investors, the next 25 years promise even greater progress. Việt Nam has proved doubters wrong before and looks poised to do so again.