Vietnamese stocks on FTSE Russell waiting list for upgrading

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Failing to meet the "settlement cycle" criterion

FTSE ‘s Country Classification review in March updated the progress of the markets on the watch list from September 2023.

According to this review, there are 3 markets including the Egyptian market (possible reclassification from secondary emerging to unclassified market); the Pakistani market (possible reclassification from secondary emerging to frontier market) and Vietnam market (on the watch list for a possible reclassification from frontier to secondary emerging market and will be updated to Waiting List status for upgrading in September 2024)

The report said that Vietnam is currently classified as a frontier market and has been on the watch list for upgrade since September 2018 for a possible reclassification to a secondary emerging market.

Vietnam has yet to meet the "Settlement cycle (DvP)" criterion and is being assessed as "Restricted" due to market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution.

Additionally, Improvements to the account opening application process are required as market practices can prolong the account opening application process.

Introducing an effective mechanism to facilitate transactions between foreign investors trading in securities that have reached or are close to reaching the foreign ownership limit is also considered an important measure.

However, according to FTSE, Vietnam's determination to upgrade to emerging market status has always been steadfastly maintained since the annual review announcement in September 2023 and was recently reaffirmed by the Prime Minister.

Accordingly, on February 28, 2023, the Prime Minister specifically committed that the Vietnamese market will remove barriers that may prevent meeting the criteria to upgrade to emerging market of FTSE in 2025.

The proposed measures include amending relevant legal regulations and creating favorable conditions as well as removing barriers for foreign investors to access the market. For example, currently, the Government is reviewing the foreign ownership ratio in industries and simplifying the account opening process for foreign investors.

At the same time, the payment model proposed by the State Securities Commission is continuing to be reviewed and adjusted to suit the active participation and coordination of market members.

FTSE Russell continues to encourage meetings between Vietnamese institutions and the international investment community to support a better understanding of the current difficulties that investors face in accessing Vietnam stock market.

The payment model must soon be approved and widely publicized

To achieve the target of market upgrade by 2025 as set out, FTSE Russell emphasized that it is important that the payment model must be approved and widely publicized soon, including setting out roles and responsibilities of stakeholders in that payment model as well as a specific roadmap.

At the same time, it is necessary to maintain a cooperative relationship with the State Securities Commission, other management agencies, and the World Bank group – a partner supporting the market reform program.

“Based on recommendations from the FTSE National Stock Market Classification Advisory Committee and the FTSE Russell Policy Advisory Board, the FTSE Russell Index Management Board has decided to maintain Vietnam on the Watch List for upgrading in the mid-term review in March 2024. Vietnam will be updated on the Waiting List status in September 2024," the report stated.

According to FTSE, a formal interim review of country classification within the FTSE global equity indices is conducted every March through a comprehensive, transparent and consistent approach. The mid-term review is to ensure that investors have information about the progress of the markets on the watch list for upgrading announced in September of the previous year in the annual review.

It is known that, implementing solutions to upgrade the stock market, the Ministry of Finance is currently officially collecting opinions to develop a circular amending 4 circulars (Circular No. 120/2020/TT-BTC; Circular No. 119 /2020/TT-BTC; Circular No. 121/2020/TT-BTC; and Circular No. 96/2020/TT-BTC) to improve two main groups of issues: pre-transaction deposit and requirements on information access rights of foreign investors.