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The next opportunity may sit beyond the headline names
Vietnam has just joined FTSE Russell’s Emerging Markets indices, bringing expectations of around US$1.5 billion in passive inflows into the market.
The first impact is relatively clear.
Passive capital follows index weights, so much of that money will naturally concentrate in Vietnam’s largest and most liquid companies, broadly the VN30 universe.
But the more interesting story may come after that.
Active investors are not constrained by index weights. They can look further across the market and focus on what matters fundamentally: valuation, earnings quality, governance and long term growth potential.
And when we look across Vietnam’s market cap spectrum, the opportunity becomes increasingly interesting beyond the headline names.
Foreign ownership stands at around 15.8% in the VN30, but falls to 10.4% among mid caps and just 6.5% among small caps.
Valuations show the same pattern. The VN30 currently trades at around 13.1x trailing P/E, compared with 10.6x for mid caps and 9.4x for small caps.
Liquidity is also an important consideration.
Over the past three months, average daily trading value was around VND 8.6tn for the VN30, VND 4.6tn for VNMID, and just VND 0.6tn for VNSML.
That means liquidity can become a real constraint at the small cap end of the market. But the mid cap universe looks more investible. It is clearly less liquid than the VN30, but still offers meaningful trading depth for institutional investors.
Of course, smaller companies are not automatically better investments. But these numbers highlight a part of the market where many fundamentally sound businesses remain under-owned by foreign investors, less covered by institutions and available at lower valuations.
The market upgrade may bring passive capital into the headline names first.
The next leg of the opportunity could come as active international investors look beyond the index heavyweights and move further down the market cap spectrum in search of quality and value.
