Vietnamese finance minister Nguyen Van Thang met with representatives from FTSE Russell last week to discuss the potential reclassification of Vietnam’s capital market. This marks an important moment in Vietnam’s journey from frontier market to emerging market status in 2025—a long-awaited upgrade that has been on the table since 2018.
MSCI does not expect a possible upgrade to ‘emerging market’ status until sometime between 2026 and 2028. But what does such an upgrade really mean, and why are structural reforms more important than economic growth alone?
Geopolitical complexity
Vietnam’s path to emerging market status is complicated by geopolitical tensions. In early July, Vietnam became the third country—after the UK and China—to reach an agreement with President Trump regarding the import tariffs he announced in April. Instead of the original 46 percent tariff, Vietnam will now face a 20 percent tariff on Vietnamese goods and a 40 percent tariff on goods deemed Chinese in origin but rerouted through Vietnam. Vietnam is the sixth-largest exporter to the United States, largely because it has positioned itself as a strategic alternative to China.
Frontier, emerging, and developed
These market classifications say more about the structure of a country’s capital markets than about its economic growth. Young, often smaller markets with limited accessibility and liquidity are labeled ‘frontier markets’. A step up are emerging markets—growing economies with more developed financial infrastructure and improved access for foreign investors. At the top are developed markets, characterized by deep liquidity, strict regulation, and full integration into the global financial system. These classifications, defined by index providers such as FTSE Russell and MSCI, influence the flow of billions of dollars in passive investment. A reclassification can therefore have a significant economic impact on a country.
Criteria for promotion
The criteria for promotion to emerging market status are diverse and highly technical. Accessibility is key: can foreign investors enter and exit the market freely? Vietnam is actively working to simplify administrative procedures and increase transparency around foreign ownership. MSCI’s 2024 Global Market Accessibility Review highlights the complexity of these criteria. Out of 18 assessment areas, Vietnam had no issues in six, showed minor shortcomings in four, but required substantial improvements in the remaining eight.
Vietnam currently makes up approximately 28 percent of the MSCI Frontier Markets Index, making it the largest component. This dominant position underscores both its strong liquidity and the importance of a potential upgrade for index-tracking funds. Liquidity alone is not enough—the market must also be operationally efficient. Since May this year, Vietnam has been operating the KRX system, a significant step toward modern trading infrastructure. The planned implementation of a central clearing counterparty in 2027 will further professionalize the market infrastructure.
Reforms are the true engine of outperformance
Many frontier markets grow faster than emerging markets, but the real value lies in the reforms that make an upgrade possible. When a country improves corporate governance, enhances ownership transparency, and creates more efficient market mechanisms, assets are often fundamentally revalued. Companies become more accessible to global investors, risk premiums fall, and valuations rise.
The Vietnamese government has presented an ambitious growth strategy aimed at moving the country into the ‘high income’ bracket by 2045. This would require a minimum annual growth rate of 8 percent over the next 20 years—an ambitious target for an economy heavily dependent on exports to the US and Europe. The reforms needed for an emerging market upgrade have become an economic necessity, especially in light of Trump’s new tariffs.
Why it matters to investors
Upgrades from frontier to emerging market status often lead to significant outperformance—not because the underlying economy suddenly changes, but because structural improvements drive revaluation. Markets that improve accessibility, transparency, and infrastructure position themselves for long-term value creation.
It is also crucial to weigh geopolitical risks. Vietnam’s success will depend not only on domestic reforms, but also on its ability to navigate between major global powers without alienating any of them. The country is internationally recognized for its flexible ‘bamboo diplomacy’, its large and well-educated population, and its strong anti-corruption drive. In addition, Vietnam is one of the few countries in Asia with relatively abundant natural resources.
Han Dieperink is chief investment officer at Auréus Vermogensbeheer. Earlier in his career, he served as chief investment officer at Rabobank and Schretlen & Co.