Vietnam must keep up the pace of reform to win a market upgrade

Vietnam needs to sustain its current pace of change if it wants to meet its 2025 target for a stock market upgrade, according to FTSE Russell.

FTSE Russell has once again held off on upgrading Vietnam's stock market, according to its latest announcement. The index provider said Vietnam must maintain its current momentum of reform if it is to hit the 2025 upgrade target.

In FTSE Russell's October 2024 country classification review, Vietnam remains on the watch list for possible reclassification to Secondary Emerging Market status.

The provider kept its existing assessments of the "Settlement cycle (DvP)" criterion (rated "Restricted"), the account opening process, and the facilitation of off-exchange trading among foreign investors in stocks that have reached or are near their foreign ownership limits.

Positive momentum

Notably, FTSE Russell said the non-prefunding (NPF) settlement model has been refined further through discussions between an industry working group and the State Securities Commission of Vietnam (SSC).

The Ministry of Finance recently issued Circular 68 along with amendments to a range of regulations. The circular removes the pre-funding requirement for international investors by updating rules on securities trading, clearing and settlement, securities company operations and information disclosure.

FTSE Russell said the next important announcement is expected to be the publication of more detailed operating rules by the Vietnam Securities Depository and Clearing Corporation (VSDC). It also continued to encourage dialogue between Vietnamese institutions and the international investment community to ensure the rules meet stakeholders' needs.

The index provider stressed in particular that maintaining the pace of change remains essential if Vietnam is to meet the 2025 deadline set by the prime minister earlier this year.

Revised market rules need to be confirmed and communicated widely, and relatively soon, including finalising the mandatory roles and responsibilities within the settlement model and a roadmap, with key milestones, setting out a clear path to implementation.

FTSE Russell also acknowledged the Vietnamese government's continued support for market reform and praised its constructive engagement with the SSC, other market regulators and the World Bank Group, which are supporting the broader reform programme.

Following recommendations from the FTSE Equity Country Classification Advisory Committee and the FTSE Russell Policy Advisory Board, the FTSE Russell Index Governance Board decided to keep Vietnam on the watch list as part of the September 2024 annual update.

Hopes for upgrade-driven inflows

A stock market upgrade has been a key government objective since 2021 and has been pushed harder in recent years.

Preliminary estimates from SSI Securities suggest that an upgrade to emerging market status could attract up to 1.7 billion USD from ETFs alone, excluding flows from active funds. FTSE Russell estimates that total assets in active funds are five times those in ETFs.

ACB Securities (ACBS), meanwhile, said an upgrade to emerging market status would be a significant milestone in having Vietnam's stock market recognised as investable by foreign investors.

Vietnamese stocks are expected to account for roughly 0.7-0.9 per cent of FTSE's secondary emerging market portfolio, drawing 500-600 million USD from index-tracking ETFs, on top of flows from active funds.

ACBS expects FTSE to add Vietnam to its secondary emerging market list as early as the March 2025 review.

Research from the CFA Institute has found that when a market is upgraded from frontier to emerging status, its main index rises by an average of 23.2 per cent between the announcement date and the effective date.

World Bank estimates also suggest an upgrade to emerging market status could bring Vietnam an additional 10 billion USD in new portfolio investment, with 2-5 billion USD potentially arriving in the first year alone.

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Source: TheLeader — theleader.vn. Republished to share knowledge with founders and investors in the HCM VIF ecosystem.