The $200 billion Vietnam stock market is awaiting a significant upgrade.

• Emerging market status for Vietnam may be granted as early as September next year.
• The trade spat between the U.S. and China has benefited the country as companies look to safeguard their supply chains.
• Global semiconductor firms are attracted to Vietnam due to its chip capabilities, making it competitive with near neighbor Malaysia.

Vietnam's long wait for emerging market status could soon be over.

The Southeast Asian country has been on the FTSE emerging market watchlist since 2018 and has recently been confirmed as a frontier market by global index provider FTSE Russell.

The Vietnamese government's support for market reforms was emphasized by the agency, which recommended more meetings between local authorities and foreign investors. An upgrade to emerging market status could attract billions of dollars in global funds to Vietnam's financial market, which currently has a market value of approximately $200 billion.

Maybank Investment Bank Vietnam's Head of Equity Research Thanh Quan Trong stated that the FTSE upgrade for Vietnam to emerging market status could occur as early as September 2025.

Vietnam's Prime Minister Pham Minh Chinh set a similar target earlier this year, and FTSE Russell advised the country to maintain its current pace of reforms to meet that deadline.

Trong informed CNBC that Vietnam is making significant advancements in resolving regulatory obstacles to elevate its market to emerging market status.

The Vietnamese government is shifting its focus back to the economy, with projections of at least 6.2% GDP growth next year. The World Bank predicts that GDP will grow 6.5% in 2025, driven by increasing global demand and restored domestic consumer confidence.

The Institute for Economic and Research Policy predicts that Vietnam's GDP growth in the fourth quarter of 2024 will be 7.4%, surpassing the 7% target set by the government.

Chip prowess

Vietnam's medium to long-term prospects are viewed positively by many, including Trong.

According to Christine Phillpotts of Ariel Investments, countries like Vietnam are better positioned because they are less dependent on foreign capital or have lower foreign debt. This makes them a safer place to invest, she stated.

Vietnam is focusing on AI development and leveraging its strengths in assembly, testing, and packaging to meet global demand for chips. Its national strategy aims to establish itself as the ASEAN hub for AI research and development by 2030. The country has already secured a $1 billion investment from South Korean manufacturing, extending to 2025.

Vietnam's chip industry is growing rapidly, making it a formidable competitor to Malaysia in the region. This has attracted global semiconductor companies to set up operations in Vietnam, including Samsung and Foxconn, which already have large manufacturing hubs in the country.

The country has profited from the trade conflict between the U.S. and China, as companies strive to safeguard their supply chains. Vietnam is poised to maintain its standing as a key player in the global manufacturing industry.

Citi's chief economist, Helmi Arman, stated that the country has a geographical advantage due to its proximity to China and access to export markets in developed countries. This is due to numerous free trade agreements.

Vietnam's neutral political stance allows it to benefit from the tensions between the U.S. and China by attracting investment from Chinese-owned companies for re-exporting to the U.S., according to Arman.

According to Bill Hayton, an associate fellow at the Asia-Pacific program for a U.K.-based think tank, Vietnam is experiencing economic growth due to the shift in expansion from China. This is because many companies are hedging their bets and moving their expansion into Vietnam, which is benefiting the country's economy. However, this is also putting pressure on China, as it is losing some of its economic momentum.

Risks

However, Vietnam's skilled labor shortage and infrastructure concerns, particularly long-held worries over the stability of its power supply, pose challenges for foreign investors.

The government's crackdown on corruption has been described as a "blazing furnace" by local media, resulting in the arrests of officials accused of taking bribes.

"Boris Hall, a Vietnam-based lawyer at Baker & McKenzie, stated that although there may be some short-term turbulence, the long-term outcome will be less corruption, which will only benefit a country. Hayton added that the anti-corruption campaign is so effective that officials are now afraid to agree to anything, which has slowed down infrastructure deployment."

In Transparency International's 2023 Corruption Index, Vietnam ranks 83rd, higher than its Asian neighbors Thailand, Cambodia, and Laos, who ranked 108, 158, and 136, respectively.

Vietnam, although benefiting from the tension between the U.S. and China, remains vulnerable to global developments such as the Russia-Ukraine war and the Middle East crisis, as well as the potential impact of the U.S. elections in November.

Arman stated that a more aggressive stance on foreign trade policy from a potential Trump administration could potentially change regional and global supply chain structures, which could impact the flow of investment into Vietnam.