MSCI and FTSE criteria for upgrading stock markets
- Louis Cao
- May 9
- 7 min read
MSCI evaluates markets through three main groups of criteria: (1) size - liquidity (based on the minimum capitalization and liquidity thresholds of global benchmark indices), (2) accessibility of international investors and (3) level of economic development (only to distinguish between DTPT and CKPT). In distinguishing Frontier vs Emerging , MSCI mainly requires satisfaction of the minimum investment threshold and international access conditions such as opening foreign ownership room, allowing free transfer and having an effective payment - clearing framework . MSCI does not apply additional conditions on average income or credit rating. In contrast, FTSE classifies markets according to a matrix of 22 criteria (Quality of Markets) along with quantitative constraints. To move up from Frontier to Secondary Emerging , the FTSE requires that a country meet a minimum market capitalization and number of listed shares, while its GNI per capita must be at least Lower Middle and its credit rating must be no lower than “Speculative”. The table below summarizes some of the key differences:
Criteria | MSCI (Frontier→Emerging) | FTSE (Frontier→Secondary Emerging) |
Capitalization & Liquidity (quantitative) | According to global index thresholds (available investment must be at least). No specific published value beyond meeting standard investment requirements . | Minimum market capitalization and number of listed shares required for each region (as regulated by FTSE; e.g. ASEAN, EMEA, etc.). For example, must meet the mcap and number of shares of Secondary Emerging according to data for the last 6 months of the previous year. |
Per capita income (GNI) | Not considered (only used to differentiate Developed vs Emerging/Frontier) | Minimum at Lower Middle level according to WB Atlas method . |
Credit rating (sovereign) | Not required (MSCI only assesses institutional stability factors through qualitative assessment) | Minimum at Speculative level (nothing below this level allowed) . |
Foreign Ownership Limit (FOL) | Requires maximum room opening for foreign investors (transferring almost all foreign ownership possible). Restricting FOL is considered a negative criterion, which may prevent upgrading . | As an important criterion in “Quality of Markets”. In particular, FTSE emphasizes the trading mechanism between foreign investors when stocks have reached the FOL (Foreign Ownership Limit) quota to increase liquidity. |
Clearing and settlement infrastructure | Require convenient payments (automatic periodic clearing, DvP transaction capabilities). Require the removal of prefunding and allow for advance loans for payments . | Requires full DvP execution (transactions where shares are delivered and cash settled simultaneously) and the elimination of pre-trade checks . FTSE values efficient settlement infrastructure (bank interest charged on expiring funds, low transaction fees) . |
Information transparency – language | Require market information and listing reports to be provided in English or other international languages, so that foreign investors can easily access them. MSCI has noted that the lack of English information limits transparency . | One of the 22 Quality of Markets criteria includes information accessibility and transparency. Requires legal information and data disclosure in English to support foreign investors (along with the recent policy of abolishing 'prefunding'). |
For example, in the Duane Morris report (2025), MSCI highlighted Vietnam’s shortcomings such as rigid foreign room, lack of information in English, and slow registration/payment infrastructure (requires pre-deposit). Similarly, FTSE noted that Vietnam did not meet the DvP Payment criteria and had to abolish pre-funding procedures. Thus, the main difference is that FTSE added macroeconomic indicators (GNI, credit) and prioritized payment system reliability, while MSCI focused on strict investment barriers and market accessibility measures.
Review and notification cycle
MSCI conducts an annual market classification review. Every June, MSCI publishes a list of countries under review and the principle is that an upgrade will only be considered if the change is irreversible . The results of the review (if any) are usually applied to the next global index review (usually in May of the following year). MSCI can also make an ad hoc review outside the cycle if there is an unusual event with a serious impact.
FTSE Russell conducts semi-annual classification reviews, corresponding to FTSE index restructurings in March and September. FTSE publishes the Watch List of markets being monitored in the annual version in September ; official updates (annual reviews) are also in September each year. In the first half of the year (near March), there are interim reviews for immediate changes if necessary. For example, in the March 2025 review, FTSE kept Vietnam on the Watch List (upgrading marginal to secondary emerging) because Vietnam had not yet completed the payment criteria . According to FTSE regulations, each market must be on the Watch List for at least 1 year to be eligible for reclassification, and FTSE usually announces at least one review period (at least one quarter) in advance for the parties to prepare.
Weight in global indices
If upgraded, Vietnam will be included in the global emerging market indexes of MSCI or FTSE, leading to a significant change in weighting. Currently, Vietnam accounts for about 28% of the total capitalization of the MSCI Frontier Markets Index (the largest among frontier markets). When upgraded to MSCI Emerging Markets, Vietnam is estimated to account for ~0.8% of the index (with available investment capital of ~30.6 billion USD compared to the size of ~3.73 trillion USD of MSCI EM). The formula for calculating capital flows from the index shows that if the index ownership ratio increases from ~22% (Frontier) to ~52% (EM+ACWI), the net capital flow will reach ~30% of Vietnam's market capitalization ( equivalent to ~9 billion USD, not including active capital flows). On the FTSE side, if included in the FTSE Emerging All Cap and FTSE All-World global indices, Vietnam will also have a significant increase in weight. FTSE estimates that upgrading to emerging secondary could attract about $6 billion in capitalization (from both passive and active funds) into Vietnam . Thus, the upgrade will increase Vietnam's weight in global indices, significantly increasing demand for Vietnamese stocks from funds tracking emerging markets.
MSCI EM and FTSE EM index size
MSCI Emerging Markets Index : covers 24 EM countries, with a market capitalization of approximately $7.85 trillion (data as of April 30, 2025). MSCI says there are over $1.3 trillion in global assets referenced in its emerging market indexes .
FTSE Emerging Markets Index : according to FTSE Russell, the total market capitalization of “emerging” countries (Advanced + Secondary Emerging) is about $9.2 trillion (data as of 24/3/2025). The entire FTSE Global Equity Index Series (including developed and emerging) has ~ $2.21 trillion AUM . (Comparison table below.)
The above figures show that the FTSE's emerging market size is slightly larger than MSCI's, but it's worth noting that both are in the trillions of dollars, meaning that a very small proportion of the index (a few percent) still represents a very large value.
Vietnam's proportion when becoming an emerging market
In FTSE EM : Assuming Vietnam can account for about 0.7–0.9% of the FTSE Emerging (Secondary) portfolio. This figure is equivalent to Kuwait's weight in the FTSE EM index (estimated at 0.9% like Kuwait). According to ACBS, a weight of approximately 0.7–0.9% will bring ETF capital flows of about $0.5–0.6 billion tapchitaichinh.vn . SSI also calculated that if we temporarily take a weight of 0.8–0.9%, the index capital flows will be about ~$0.8 billion (passive) .
In MSCI EM : there are no official estimates from Vietnamese securities companies, but we can refer to the experience of other countries. For example, Pakistan (capitalization ~50 billion USD) is classified into MSCI EM with a weight of ~ 0.1% , resulting in passive capital inflows of ~$300 million . The Vietnamese stock market has a larger capitalization (~220 billion USD), if the weight is ~0.4–0.5% (4–5 times Pakistan), the corresponding index capital inflow is about $1.2–1.5 billion (passive) in the first year. In fact, if it reaches 0.5%, the amount of passive capital inflow is about 0.3T*0.5% = $1.5 billion, equivalent to the above calculations .
In summary, the estimated weighting assumption of 0.4–0.5% for MSCI EM and 0.7–0.9% for FTSE EM (based on the Kuwait, Pakistan experience) will be the basis for calculating capital flows.
Projected Passive Capital Flow (1–3 years)
Passive capital flows are mainly from ETFs and global index funds. We can estimate based on the size of EM fund AUM: FTSE EM currently has about $93B in index assets, while MSCI EM has ~ $300B in passive funds (equivalent to 20% of the total $1.5–1.7T). Using the above assumed weightings, we get:
FTSE EM (Secondary) : AUM ~$93 billion, VN weight ~0.8%. Estimated passive capital inflows into Vietnam are about $93T×0.008 ≈ $0.8 billion (at the time of promotion). After that, passive capital can be gradually allocated over 3 years, assuming a gradual decrease, totaling about $1–1.2 billion over 3 years.
MSCI EM : Passive AUM ~$300 billion, VN weight ~0.5%. Estimated passive flow ~$300T×0.005 = $1.5 billion (first year). Based on upgrade experience, the rest will be gradually allocated in the next 2 years, totaling about $2–2.5 billion in 3 years.
On the other hand, if we consider international experience (Pakistan 0.1%→0.3%), 0.5% in Vietnam is equivalent to ~$1.5 billion immediately.
Preliminary estimate table (assumptions):
Index | Assumed VN weight | Passive stream (3 years) | Note |
MSCI EM | ~0.4–0.5% | $2–2.5 billion (approximate) | Passive flows mainly from global ETFs (~$300 billion AUM) |
FTSE EM | ~0.7–0.9% | $1–1.2 billion (approximate) | Passive flows from FTSE ETFs (~$93 billion AUM) |
(The numbers in the table are rough estimates based on index AUM size and assumed weightings.)
Forecasted Active Capital Flow
In addition to index (passive) capital flows, there are also active capital flows from growth funds, valuation funds, and large funds. These capital flows often depend on the economic outlook and investment environment:
Economic growth : Vietnam is forecast to have a GDP growth of ~6–7% in the coming period, higher than many major economies in the region. High growth rate creates an advantage to attract proactive investors.
Political stability and reform : Vietnam is relatively politically stable, with continuous improvements to its legal framework. For example, Circular 68 (November 2024) removed the requirement for 100% pre-funding by foreign investors, and the new KRX trading system allows T+0 to increase liquidity . The requirement for English-language disclosure for listed companies also increases transparency. These reforms increase the attractiveness compared to other frontier markets.
Foreign ownership (FOL) : Vietnam is loosening foreign room (currently up to 100% in some industries), allowing large funds to invest in higher proportions.
Regional competition : Compared to emerging markets such as India, China (reduced room), or Thailand - Indonesia (more developed), Vietnam has its own attraction thanks to growth and young population.
In summary, the additional active capital flow is expected to be about 3-5 times the passive flow (according to FTSE experience: about 5 times ). For FTSE EM, SSI estimates an additional $1.8 billion in active flows (assuming VN increases from 0.4% to 0.8% at a scale of ~5×93=$465 billion). For MSCI EM (a larger global active fund), this figure could be several billion USD (although it is difficult to determine exactly).
Competitive factors such as high GDP growth , economic and political stability, market reforms and room relaxation demonstrate that Vietnam can attract significant active capital flows in the next 3 years. In fact, many studies show that active funds often allocate many times more than passive funds to high-prospect markets.
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