On August 21, one month before Vietnam's reclassification to secondary emerging market status takes effect, FTSE Russell released a list of 27 Vietnamese stocks to be included in its All Cap Index. This revision, including four more names than the 23 announced on April 8, raises Vietnam’s projected full-inclusion weight in the FTSE Emerging All Cap Index to 0.49%, from the previous indication of 0.33%. On this basis, Vietcap Securities raised its estimate of index-related passive flows into Vietnam to USD 3 billion from USD 2 billion.
While sentiment improved around the news, with the VN Index rising 2.0% on August 21 and a further 1.2% in the session that followed, the effects of the weight increase will materialize gradually over years. FTSE Russell will phase the inclusion across four tranches of 10%, 20%, 35%, and 35%, reaching full inclusion by September 2027. Applying the initial 10% factor to Vietcap's USD 3 billion estimate would imply around USD 300 million of index-related flows in September, although actual flows will depend on fund positioning and individual stock weights. Because the capital comes in stages rather than at once, the market has time to absorb it, and we do not expect index-related flows to drive major price moves in any single tranche.
In our view, what matters more is the long-term capital from active funds that we expect to follow over the next one to two years. Unlike mechanical index inclusion, active allocations are discretionary and therefore place greater weight on company-level fundamentals, valuation, and governance. At Kenno, we see this as the more significant long-term opportunity arising from the upgrade.
This is why owning high-quality businesses with long-term earnings visibility matters more to us than following short-term market movements, which in Vietnam are often driven by retail speculation, rumors, and shifting sentiment rather than company fundamentals. A broader institutional base changes who sets prices in that market, and over time, that should reward companies that deliver on earnings rather than those that attract attention.
Our portfolio companies FPT Corporation (FPT), Masan Group (MSN), and Vincom Retail (VRE) were among the 27 names on the preliminary list. Being included means these companies have passed FTSE Russell's screens for company size, free float, and liquidity. Outside this list, however, sit solid businesses that were excluded because foreign ownership already sits near the statutory ceiling, such as our holding Mobile World Corporation (MWG).
While we closely monitor developments in the reclassification process, it is less because of the passive flows associated with the market upgrade, and more about where the reclassification places Vietnam on the global investment map. In our view, a higher index weight makes Vietnam a more attractive market for foreign institutional investors, alongside the country's ongoing regulatory progress to bring its market infrastructure closer to global standards. Meanwhile, in our portfolio, the investment case for each holding rests on what the business earns in the years ahead, rather than on how much capital flows its way as part of a broader wave.
The Kenno Vietnam Fund invests in fundamentally sound Vietnamese companies at attractive valuations. Three of our holdings are among the 27 Vietnamese companies scheduled for inclusion in the FTSE Global All Cap Index, which brings them to the attention of a wider group of buyers. If you would like to learn more about the fund or our investment approach, feel free to reach out to us.