Dragon Capital analysis reveals expectations for the Vietnamese stock market following emerging market upgrade

(MENAFN- Perceptiona) Improved performance increased foreign direct investment and heightened liquidity are among the expected benefits from Vietnam’s upgrade to emerging market status, analysis from Dragon Capital, Vietnam’s largest fund manager, reveals.
Exploration of the outcome from Saudi Arabia’s 2019 market upgrade found that between the end of 2018 and March 2025, foreign ownership in Saudi stocks increased almost fivefold from around $23 billion to $111.3 billion. A large portion of this growth occurred soon after inclusion in EM indices.
Further, the MSCI Saudi Arabia index outperformed the broader MSCI EM index following its 2019 inclusion. This suggests that the reclassification improved global investor sentiment, boosted Saudi Arabia’s profile, and drove substantial capital inflows, contributing to liquidity and price gains as well as an expansion of its investor base.
Analysis of Kuwait’s upgrade from frontier to secondary emerging market status by FTSE Russell in 2018 and MSCI in 2020 shows the country experienced about $700 million in net foreign inflows in H2 2018, and a further $1.1 billion in the first five months of 2019, far higher than the approximately $200 million a year earlier.
These figures indicate substantial active buying in anticipation of both the FTSE and the later MSCI upgrades. Estimates at the time projected $800-950 million of inflows from passive index trackers linked to the FTSE upgrade alone.
By the time MSCI announced its upgrade, analysts predicted a further $2.8 billion of passive inflows (based upon a 0.5% index weight), and active flows of $5-10 billion were projected.
Kuwait also experienced a notable increase in market sentiment in the lead-up to the FTSE upgrade in September 2018. Its index rallied by 9% in the months leading up to that date as foreign investors sought to position ahead of inclusion. The market rose further ahead of MSCI inclusion.
Tung Dang, Senior Economist at Dragon Capital said: “The lesson from Kuwait and Saudi shows that such market upgrades are typically accompanied by significant foreign inflows – including active, discretionary capital – as well as strong market performance. We are confident that Vietnam’s new emerging market status will have a positive impact on market sentiment, liquidity and volatility. Moreover, we expect those benefits to be sustained over the long term, underpinned by ongoing structural and market reforms in the country.”

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