FTSE retains Vietnam on watch list for possible upgrade to emerging market status, urges pacey change

London-based global equity index provider FTSE Russell has decided to retain Vietnam on its watch list for possible reclassification to “secondary emerging” market status.

Vietnam was added to the watch list in September 2018 for a possible upgrade from the current “frontier” market status.

In the September 2024 annual update, FTSE said 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.

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

Additionally, improvements to the process for the registration of new accounts are required, as market practice can result in the extension of the registration process. 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) is also seen as important.

A circular issued last month by the Ministry of Finance removes the pre-funding requirement for international investors purchasing equities, by updating various regulations that govern securities transactions, the clearing and settlement of the transactions, the activities of securities companies, and information disclosure.

The next relevant announcement is anticipated to be the release of more detailed operating rules by the Vietnam Securities Depository and Clearing Corporation (VSDCC).

“FTSE Russell continues to encourage meetings between the local Vietnamese entities and the international investment community, to ensure these rules meet the needs of the relevant international, and local participants, that will use them,” it stated.

The agency suggested the pace of change be maintained if Vietnam is to meet the 2025 targeted deadline, set by the Vietnamese Prime Minister earlier this year.

The revised market rules need to be confirmed and widely communicated relatively soon, including finalization of the required roles and responsibilities within the settlement model, and a roadmap, with key milestones, setting out the path towards implementation, FTSE Russell added.

FTSE Russell noted the continued support of the Vietnamese government for market reforms.

The government is also working with international agencies to have its stock market status upgraded to an emerging market by New York-based MSCI.

If upgraded, Vietnam will be on the same table with Asian peers like China, India, Indonesia, the Philippines, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates.

Once the upgrade is ensured by both FTSE Russell and MSCI, Vietnam is estimated to attract international investments of up to $25 billion in its stock market, the World Bank said earlier this year.