Vietnam's Upgrade To Emerging Market Status (2026): What Foreign Investors Must Do Now To Be Ready

The waiting game is over. FTSE Russell has officially announced that Vietnam will be reclassified to Secondary Emerging Market (EM) status effective September 2026. For foreign investors, this is no longer a "if" but a "when." The window to position capital before the massive liquidity wave hits is closing fast. This article outlines the new rules of engagement, where the smart money is positioning, and the structural pitfalls that could trap the unprepared.

1. What the FTSE upgrade really changes (and what it doesn't)
The upgrade is a structural transformation, not just a label change. It fundamentally alters the "plumbing" of how foreign money enters Vietnam via changes in legislation made for Vietnam to gain the status.

1. The "Pre-funding" Removal is the Game Changer: Historically, Vietnam required foreign investors to have 100% cash on hand before placing a trade. This was a deal-breaker for global institutional investors. The new Non-Prefunding (NPF) model introduced to get the status for Vietnam allows investors to settle trades similar to developed markets (T+2), removing the single biggest friction point for capital entry.
2. Visibility and Liquidity: Inclusion in the FTSE Emerging Index forces passive funds (ETFs) that track this index to automatically buy Vietnamese stocks. This creates a guaranteed "floor" of demand that did not exist before.
What it DOESN'T Change: It does not immediately remove all Foreign Ownership Limits (FOL) across the board. While liquidity will improve, the legal caps on how much of a bank or telecom company you can own remain in place. Investors must still navigate these "rooms" and structure their investments upon entering into Vietnam.

2. Sectors under immediate regulatory stress
The government is racing to upgrade regulations to match the market status. This creates specific "stress points" where opportunities are hidden.

1. Banking: The sector is hungry for capital. To meet Basel III standards and sustain credit growth, banks need foreign equity. It is important for investors to watch for banks undergoing "mandatory transfer" (banks required to take over weak banks). New decrees allow these specific banks to lift the foreign ownership limit from 30% to 49%. This is a rare window for foreign strategic investors to gain significant control.
2. Energy: The implementation of Power Development Plan VIII (PDP8) is now in the "hard" phase—pricing negotiations. In other words, investors in renewable energy are facing strict price ceilings. However, the inauguration of the first LNG power plants signals a shift. The government is fast-tracking LNG legal frameworks to prevent power shortages, making this a prime sector for infrastructure investors who can navigate Public-Private Partnership (PPP) laws.
3. Real Estate: The trio of new laws (Law on Land, Law on Housing, Law on Real Estate Business) effective recently has cleared the legal logjam but raised compliance bars. According to the new laws, access to land is cleaner but more expensive due to market-based land valuation.

3. Structuring pitfalls we already see
As interest spikes, we see will investors rushing in and making avoidable structural errors that hurt them later. Below are some of the structuring pitfalls we are likely to witness in the next course of business in Vietnam.

1. Thin Capitalization: To accelerate the process of setting up a company in Vietnam, we have seen investors establishing companies with minimal capital (e.g., $10,000) to save cash. In this regard, banks are increasingly blocking payments for services/imports if a company's registered capital is too low to support its transaction volume. Thus, it is likely that companies with minimal capital will be forced to inject capital later, which requires bureaucratic approval.
2. Nominee Structures: Lots of companies are using a local individual to hold shares to bypass the 49% limit in certain sectors. Vietnam's new ultimate beneficial ownership regulations (aligned with FATF) are cracking down on this. Courts are increasingly invalidating these "side agreements," leaving foreign investors with zero legal recourse and total loss of assets.

4. What Vietnam still does not allow
Managing expectations is vital. "Emerging Market" status does not mean "Open Market."

1. Strict FX Controls: You cannot freely wire VND out of the country. Capital repatriation is strictly controlled. You must prove you have paid all taxes and audited your financial statements before remitting profits home.
2. The "Conditional" List: Sectors like Defense, News/Media, and certain Telecommunications remain strictly off-limits or capped at 0-49%. The upgrade does not automatically waive these Foreign Ownership Limits.

5. How investors should prepare
To be ready for the 2026 liquidity event, this is now the time to act.

1. Audit your entity: If you are already in Vietnam, conduct a "health check" on your business. Also, to align with the new regulations, it is important that you must take a look at your current business structure to ensure that it complies fully with the laws of Vietnam to prepare for the tsunami of capital when it hits in September 2026.
2. Avoid Structuring Pitfalls: To be ready for the next era of Vietnam, it is critical that investors must avoid the already-proven structuring pitfalls by establishing the right structure at the outset before making any important decisions.
3. Open Securities Accounts: For portfolio investors, the new NPF (Non-Prefunding) model requires specific setups with custodians and brokers. Do not wait until September 2026; the KYC (Know Your Customer) queues will be long.
4. M&A Readiness: If you are looking to acquire local companies, have your due diligence teams ready by Q1 2026. Local sellers will demand higher premiums as the September upgrade approaches.
5. Currency Hedging: With strong inflows expected, the Vietnamese Dong (VND) may fluctuate. flexible hedging strategies should be in place to protect capital against short-term volatility during the inclusion period.
The Bottom Line: Vietnam's upgrade to Emerging Market status is a validation of its economic resilience. The capital is coming. The question is not whether to invest, but whether your legal and operational structures are robust enough to handle the growth when the floodgates open in September 2026.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.