International investors can pour an additional $25 billion into Vietnam’s stock market by 2030 if its status is upgraded from frontier market to emerging market, says a World Bank expert.
Ketut Ariadi Kusuma, senior financial sector specialist with the WB, said at a conference in Hanoi Wednesday that the potential could be unlocked when the status upgrade was made by two global index providers FTST Russell and MSCI.
The WB specialist said he supported Vietnam’s approach in getting the upgrade from FTSE Russell first, but noted that the larger portion of additional foreign investment was likely to come from a similar action by MSCI.
He said Vietnam should work on loosening its current foreign ownership limit (FOL) and pushing further its SOE privatization process. He suggested specific measures including improving information disclosure, widening access to stocks that have nearly reached their FOL, and raising the FOL.
If the FOL remains a bottleneck, Vietnam’s fresh net investment flow could be as low as $5 billion because Vietnamese constituents would account for less than 1% of the global Emerging Market index, he said.
He estimated that the country could attract an additional $8-15 billion in investments if the FOL issue was dealt with radically.
The specialist also recommended that Vietnam develop a domestic investor base, including diversification of investments by the Vietnam Social Security (VSS) fund into corporate securities. A modest allocation of VSS investment in corporate securities would trigger an inflow of billions of U.S. dollars into the corporate sector, he said.
Kusuma also noted that overall reforms in the pension sector can result in attracting investments of $25 billion in companies by 2030.
What’s more, reforms in the insurance and investment fund industry could direct another $28 billion or so to local companies via the capital market.
Increased investment demand in Vietnam also indicates the need for high-quality financial products, particularly shares and corporate bonds. This, in turn, stresses the importance of a sound ecosystem that embraces close monitoring, clear information disclosure and reliable credit rating.
Johan Nyvene, CEO of Ho Chi Minh City Securities JSC, suggested that listed companies in sectors that are not subject to foreign ownership restrictions can proactively have registration details changed to increase their FOL.
Nyvene also suggested that Vietnamese authorities remove the existing pre-funding requirement, saying this would make Vietnam more attractive to foreign investors and make the market status upgrade more feasible.
Citing criteria set by MSCI and FTSE Russell, Nyvene recommended that Vietnam make improvements related to liquidity, transparency and corporate governance standards; infrastructure development and related financial services; and education of investors.