Vietnam’s stock market still on the watch list of FTSE Russell

Vietnam has been on the list of observation for upgrading to emerging market of this organisation from September 2018. Source: Internet

The market still only meets seven of nine criteria

According to the British analytics and data solution provider FTSE Russell, Vietnam stayed on the list of observation for upgrading to secondary emerging market status.

According to FTSE, Vietnam has been on the list of observation for upgrading to emerging market of this organisation from September 2018. Based on the new criteria applying to the assessment in March 2020 introduced by FTSE, Vietnam has met seven out of nine criteria to upgrade to secondary emerging market.

The remaining two criteria are Settlement – rare incidence of failed trades and Settlement cycle DvP – that has been evaluated as N/A and Restricted.

According to FTSE, the reason for the two above criteria comes from the regulation that requires investors to deposit enough cash before being allowed to place orders. FTSE said that this requirement has prevented the clearing from complying with the standards and nature of the Delivery versus Payment (DvP) model. Therefore, the DvP Payment Cycle criterion is rated at “Restricted”. Additionally, due to this regulation, the possibility of transaction failure is almost non-existent, so FTSE did not evaluate this criteria.

Expectations for September 2021

According to VNDirect Securities Company, there were two main bottlenecks that must be resolved to upgrade the Vietnamese stock market to the emerging market group of MSCI and FTSE, including foreign ownership limit (FOL) and clearing, especially solving a problem of requiring to deposit enough money before a transaction.

“Vietnam has attempted to resolve the bottleneck on foreign room with the revised Securities Law, the amended Enterprise Law and the revised Investment Law which were passed by the National Assembly and are expected to take effect from January 1, 2021. Along with that, Vietnam was also trying to solve the bottleneck on ’Securities Clearing‘ by cooperating with Korean partners to implement a new securities trading system that is expected to be completed in 2021,” VNDirect analysed.

Along with that, Vietnam also plans to establish a clearing house under the Central counter Party model (CCP). According to VNDirect, with this new clearing model, Vietnam hopes to solve the problem of "checking requirement of depositing enough money before transactions" as at present, removing an important "bottleneck" in the process of upgrading to emerging markets of MSCI and FTSE.

In a positive scenario, if Vietnam completes the implementation of a new stock exchange system in the first half of 2021, VNDirect thought Vietnam could be put on the list of observation for upgrading to the emerging stock market of MSCI in its annual market review in May 2021. After that, Vietnam might be announced to be upgraded to an emerging market in MSCI's annual market review in May 2022, and the upgrade would take effect a year later in June 2023.

In an optimistic scenario, Vietnam's stock market could be announced to upgrade to the secondary emerging market of FTSE during the market assessment in September 2021.

VNDirect also estimated that Vietnam's stock market could attract foreign capital inflows of up to $1.4 billion to $1.9 billion due to being upgraded to an emerging market, of that $779 million to $1.04 billion would come from ETFs simulated on emerging market indexes of MSCI and FTSE; and $670 million to $891 million from active investment funds looking for investment opportunities in emerging markets.