The Vietnamese economy has defied naysayers, reaffirming its position as a standout performer across emerging markets. Despite the recently confirmed 20% blanket tariff being imposed by the US, Vietnam delivered an upside surprise in 2Q25 GDP growth, which accelerated to 8% year on year, sustained in Q3 reporting at 8.23%. Meanwhile, the index provider FTSE Russell’s move to reclassify Vietnam’s stock market from “frontier” to “secondary emerging” status is a major step forward – just 25 years after equity trading began in Ho Chi Minh City with seven licensed securities companies.

The upgrade is particularly significant amid a challenging backdrop, with both the 20% tariff and 40% “transshipment” tariff threatening Vietnam’s export engine. Yet, having tracked the country’s rapid progress for decades, we are confident that continued reforms in capital markets will strengthen domestic resilience, offset external shocks and deliver even greater dividends in the years ahead.

Recognition with implications

FTSE Russell, part of the London Stock Exchange Group, announced the long-awaited reclassification on October 7, having kept Vietnam on its watchlist since 2018. The new status places Vietnam two steps below the top-ranked “developed” category and recognises years of coordinated effort from government, regulators and market participants.

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 Vietnam, shedding the frontier label brings both recognition and reassurance. It can profoundly reshape investor behaviour and confidence, altering the trajectory of its long-term economic development and reducing dependence on any single trading partner.

Rapid progress

Vietnam’s capital markets have advanced on multiple fronts. Market capitalization has risen more than sevenfold over the past decade, while the number of trading accounts has grown around the same. The VN-Index is up by a third in the past year alone, surpassing its Covid-era highs, when optimism over Vietnam’s role in global supply chains was at its peak.

Institutional investors in Vietnam, with their long-term perspective, have worked closely with policymakers to shape reforms in areas such as market access and corporate disclosure.

The reclassification will not slow reform momentum. Global investors with confidence in Vietnam’s future will continue to press for greater alignment with international standards.

Keeping the momentum

Vietnam’s stock market has come a long way – but it can go so much 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 to see in September this year the Ministry of Finance publish ambitious plans on developing the investment fund industry and reshaping the investor base. Specific policy measures and action plans to support broader objectives of improving institutional participation through policy and legal framework enhancements, broader reaching public education initiatives and strengthening management and supervision of the market to ensure integrity.

The stock market remains a weaker source of corporate funding than its regional peers. The capital market, according to the World Bank, lags behind similarly sized rivals, leaving Vietnam’s economy heavily reliant on bank credit. Bank lending to Vietnam’s private sector, according to HSBC Global Investment Research, is more than double the stock market capitalization.

This gap makes it an outlier among major Asean ( Association of Southeast Asian Nations ) economies and leaves the economy more exposed to the impact of inflation and higher interest rates. It is also encouraging to see coordinated capital market enhancements published in September to simplify the initial public offering and listing process, with important steps in administrative procedure reforms to enhance capital raising efficiency and protect investor rights in the securities market.

Reform momentum

It’s worth noting that index reviews are not irreversible. Pakistan, for example, was downgraded back to frontier status last year. Vietnam has faced setbacks too: FTSE Russell’s 2023 review cited concerns over stalled progress and warned the country risked being dropped from its watchlist.

A renewed sense of urgency has taken hold. In early 2024, Prime Minister Pham Minh Chinh signed a directive to accelerate measures required to meet the government’s 2025 upgrade target.

Settlement practices had long been a sticking point, as Vietnam required funds to be in place before trades were executed. Other barriers included complex market entry rules and foreign ownership restrictions. Over the past year, reforms have addressed these issues. The State Securities Commission ended the pre-funding requirement, streamlined market entry, upgraded trading infrastructure and mandated English-language disclosures for listed companies.

Further reforms are underway, additional streamlining of account opening processes mandated and being implemented. A central counterparty clearing mechanism is in development, market development and reform momentum is sustained. With a recent target published for the larger MSCI emerging market upgrade, including action plans, there are no indications of momentum slowing.

Looking forward

As its stock market marked its 25th anniversary in July, Vietnam 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. Vietnam has proved doubters wrong before – and looks poised to do so again.

Gary Harron is the head of securities services for Vietnam at HSBC.