FTSE retains Vietnam in watch list for reclassification to emerging market status

FTSE Russell, one of global index providers, has kept Vietnam in its watch list for possible reclassification to a secondary emerging market from a frontier market currently.

Vietnam has yet to meet the “Settlement Cycle (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 Russell says in a statement on Wednesday.

Since, by default, the market does not experience failed trades, the “Settlement – costs associated with failed trades” criterion is unrated.

Additionally, FTSE suggests improvements to the process for the registration of new accounts, and the introduction of an efficient mechanism to facilitate trading between non-domestic investors in securities that have reached, or are approaching, their foreign ownership limit (FOL).

The index provider highlights the Vietnamese government’s determination to achieve the emerging market status. On February 28, 2024, Prime Minister Pham Minh Chinh committed the Vietnamese market to the removal of various obstacles that may prevent Vietnam from meeting the FTSE Equity Country Classification criteria next year.

The list included the amendment of relevant legal regulations and the creation of more favorable conditions and removal of barriers for foreign investors to access the market. A review of the current FOL regime and simplification of the foreign investors account opening process were given as examples.

The proposed settlement model under consideration is being further refined, by an industry group, working alongside the State Securities Commission (SSC), the country’s stock market authority.

“FTSE Russell continues to encourage meetings between the local Vietnamese entities and the international investment community, to assist in better understanding the current difficulties encountered when accessing the Vietnamese equity market,” it states.

For Vietnam to achieve the reclassification target by 2025, FTSE recommends that the settlement model be confirmed and widely communicated, including finalization of the required roles and responsibilities within the settlement model, and a roadmap, with key milestones, setting out the path towards implementation.

Vietnam was added to the FTSE watch list in September 2018.

In addition, the Vietnamese government also aspires to get the stock market upgraded by MSCI next year. Both FTSE Russel and MSCI have pointed out pre-funding as a hurdle to the status upgrade.

To solve this issue, the SSC is gathering comments on a proposal to allow eligible securities companies to provide services without requiring foreign investors to have 100% of the cash required to purchase the stocks available before placing orders.

BIDV Securities JSC analysts have anticipated FTSE Russell to upgrade Vietnam’s stock market status in September 2024 or March 2025, while MSCI may put Vietnam on its watch list in June 2025 and upgrade the status three months later.

Vietnam may welcome an additional $25 billion from international investors into its stock market by 2030 if its status is upgraded by both FTSE Russell and MSCI from frontier market to emerging market, a World Bank expert said at a national conference on stock market development on February 28.