Market status upgrade to help Vietnam attract $2-10 bln in foreign capital: MayBank Securities

Foreign capital flows into Vietnam’s stock markets can reach $2-10 billion once the nation gets upgraded to emerging market status, MayBank Securities CEO Kim Thien Quang tells The Investor.

What do you think about the State Bank of Vietnam’s (SBV) recent move to issue treasury bills? Has the Vietnamese stock market’s reaction been too negative?

I think this is a normal liquidity regulation activity of the central bank with the goal of narrowing the gap between interbank interest rates and U.S. dollar interest rates, thus reducing pressure on the exchange rate. This is a carefully calculated and reasonable step amid the excess liquidity in the banking system. At the same time, this is also a wise step by the SBV as it has not used the tool of selling foreign exchange reserves to shore up the local currency.

The SBV is focusing on three goals: reducing exchange rate pressure, ensuring a trading band of +/- 3% and avoiding the sale of foreign exchange reserves; ensuring the economy’s liquidity to avoid a collapse, and maintaining its commitment to supporting economic recovery and further reducing deposit interest rates.

Individual investors account for 90% in the market and they often overreact to the information. In the previous period, the stock market experienced a good increase. Following the SBV’s money withdrawal, individual investors took profits. On the contrary, foreign investors look at the value so when stocks fall to an attractive valuation, they turn net buyers.

How do you predict the stock market’s growth momentum in the near future?

I think that when deposit rates decrease, the stock channel becomes more attractive, and in recent times, market liquidity has also improved a lot. Economic recovery will be the driving force in the coming months, thanks to the government pushing public investment disbursement and attraction of foreign direct investment (FDI). We can see the government's recent efforts to attract FDI through the mutual visits by senior leaders of Vietnam and the U.S., and the signing of many strategic agreements.

In addition, if lending interest rates decrease on par with the decline in deposit rates, businesses will have easier access to capital.

Furthermore, I am expecting a recovery in consumption and an upgrade of the stock market from ‘frontier’ to ‘emerging’.

Which groups do you think will attract most cash flows in the remaining months of this year?

With the government’s efforts to accelerate public investment, I think the cash flow will run into stocks of infrastructure construction companies. Oil prices are increasing and the government is focusing on promoting exploitation activities, so the oil and gas group will also draw attention. The industrial real estate stocks will attract cash flow thanks to bustling FDI attraction moves. Technology stocks could also be a bright spot in attracting cash flows.

What do you expect from the regulator’s goal of upgrading Vietnam's stock market to ‘emerging’ status before 2025? Can the market fulfil the needed Key Performance Indicators (KPI)?

This is a big goal for the regulator. From the perspective of a market member, I see that the State Securities Commission (SSC) is making great efforts to help Vietnam meet the upgrade criteria. Maybank Securities and other market members have joined many meetings with the SSC to discuss how to remove the pre-funding regulation.

In the near future, the new trading system provided by the Korea Exchange (KRX) will go into operation, followed by the birth of a central counterparty clearing house (CCP). With the above developments, I think we can absolutely expect Vietnam's stock market to be upgraded before 2025.

Recently, FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG) announced the market ranking results for September and Vietnam is still on the waiting list. One reason for FTSE Russell to do so is the commitment of the Vietnamese regulator.

When the upgrade happens, what will be the impact on foreign capital flow into the Vietnamese stock market?

I predict foreign capital flows into Vietnam will reach $2-10 billion. The most important thing is that foreign institutional investors will make the market structure more balanced and stable. Currently, 80-90% of individual investors are domestic investors.

Opportunities from the market status upgrade are clear, but what about challenges, if any?

I think that one of the challenges is that foreign investors will demand improved quality of listed enterprises, higher transparency in reports, information disclosure in English, management of internal transactions and minimization of violations. At the same time, improving corporate governance and environmental, social and governance (ESG) standards that measure factors related to the sustainable development of a business is also very important.

So the market upgrade journey can be difficult. What can we do to avoid following in Pakistan's footsteps?

I think this is unlikely. Pakistan's downgrade was due to its failure to ensure market liquidity. The liquidity of Vietnam's stock market is currently sufficient and even higher than many countries with emerging markets.

What does Vietnam need to learn from the markets of neighboring countries like Thailand and Malaysia?

To upgrade its market, Malaysia also went through several steps to meet the criteria of pre-funding, liquidity, scale and openness to foreign investors. One thing it did very well was transparency. It has a market monitoring system with securities companies as the frontline force. This is a completely independent system, meaning that besides KRX - the core system, Vietnam needs to build its own monitoring system. Reporting may conflict with customer interests, but all market participants report, the system updates automatically, and then customers understand that all of them are monitored. At that time, this will become normal.

Is there any way to control insider transactions without prior reporting?

Making a transaction is an investor's action, so securities companies cannot manage it. But recently, the SSC issued a document requiring securities companies to lock transactions of company insiders only for their own company's stocks.

Previously, securities companies let customers declare the transactions themselves. Currently, the Vietnam Securities Depository sends the lists of company insiders to securities companies. This rule has taken effect and securities companies have three weeks to prepare their systems. I think that securities companies will have their systems ready by early October.

However, according to regulations, insiders are allowed to trade less than 5,000 shares and no more than 20,000 shares per month without having to disclose information. This causes difficulties for the securities company systems as they just stop at the locking step.

I believe this solution will fix the problem of undisclosed trading by insiders, preventing unfair trading practices in the market.

The greater the foreign capital inflow, the greater role this sector will play in the stock market. What should domestic investors, especially individuals, do to prepare for the upcoming period?

When the market grows larger and more stable, fundamental factors will be key for investors to achieve efficiency. I would recommend that investors equip themselves with knowledge about market workings and developments. They can also look for funds to guarantee their investments.

How has Maybay Securities prepared for the new period?

We focus on three activities. First and foremost, all market members, not just Maybank Securities, should gather technological resources, ensuring a complete connection system that is compatible with KRX.

Next, we will actively promote investment opportunities in Vietnam to foreign funds. In early June, Maybank Securities invited eight large Vietnamese enterprises to Invest ASEAN 2023, an annual investment conference hosted by Maybank Group. On September 29, we worked with 12 funds from the U.S., Europe, Thailand and Malaysia who manage a portfolio worth around $1 trillion in total.

Finally, as the stock market becomes larger and larger, we place emphasis on training. The contingent of brokers not only helps customers place orders but also provides them with investment advice.