Việt Nam is still on the watch list of FTSE Russel for a possible reclassification from frontier to secondary emerging market status, the global index provider FTSE Russel said in its September report. However, the opportunity for the stock market’s upgrade may become clearer next year. 

 

The country has been on the watch since 2018.

 

FTSE Russel said that Việt Nam’s reform progress is slower than expected, partly due to the COVID-19 pandemic. 

 

Việt Nam has yet to meet the delivery versus payment (DvP) criterion, which is currently rated as ‘Restricted’ due to the market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution, FTSE Russel said. 

 

Meanwhile, as the market does not experience failed trades, the ‘settlement - costs associated with failed trades’ criterion is unrated.

 

It added that Việt Nam would need to improve the process for the registration of new accounts and the introduction of an efficient mechanism to facilitate trading among foreign investors in securities that have reached, or are approaching, their foreign ownership limit.

 

FTSE also highlighted the role of the Vietnamese Government in accelerating the progress.

 

“Even though the reform progress is still slow, the Government’s commitments in boosting the upgrade is clearly showed. Moreover, the State Securities Commission (SSC) is working hard to seek a workable solution to the issue of prefunding,” FTSE said. 

 

FTSE Russell said it continued to maintain a constructive relationship with the SSC, the World Bank Group and E&Y who were supporting the wider market reform programme, and other key market authorities.

 

According to SSI Securities Corporation, authorities are using a lot of resources to ensure satisfaction of criteria from rating organisations such as FTSE Russell and MSCI.

 

In fact, quantitative criteria are not a major obstacle for Việt Nam as the stock market already has a sufficient number of representative stocks, the securities said.

 

It also noted that among barriers set by major international rating agencies and financial institutions, the prefunding requirement is the main obstacle hindering the upgrade of the stock market. 

 

Regarding short-term solutions, many proposals are currently discussed such as amending Circular 120 to remove the regulation that foreign investors need to have 100 per cent of money in their accounts to make orders. 

 

In addition, the maximum foreign room depends on the decision of each company, as long as it complies with regulations, according to SSI Research said that. Therefore, in the long term, it is necessary to maximise foreign room for most industries and limit it to only a few truly necessary sectors.

 

On the other hand, the implementation of the KRX system is a necessary condition while the presence of a central counterparty clearing house (CCP) mechanism is a sufficient condition for transactions to be performed and payment risks to be controlled.

 

According to the plan, the preparation of KRX is expected to be completed by the end of this year. 

 

SSI Research believes that this period is the right time for upgrading the ranking of the Vietnamese market, creating a path to welcome large capital from other professional foreign investment funds.

 

The opportunity to be upgraded by FTSE Russell may become clearer in 2024 and the possibility of being upgraded by MSCI in the following years will require more efforts and determination of all market participants.  — VNS