Vietnam stock market charms foreign investors with non pre-funding solution: broker

The Vietnamese stock market is anticipated to welcome an influx of foreign capital once the non pre-funding solution (NPS) is effective from November 2, says leading broker VNDirect Securities.

On September 18, the Ministry of Finance issued Circular 68, allowing foreign institutions to purchase Vietnamese stocks without having to show sufficient funds upfront.

Currently, foreign investors must fully transfer funds before buying stocks, a bottleneck that has hindered the upgrade of the Vietnamese stock market status from “frontier” to “emerging”.

Therefore, Circular 68 is expected to help Vietnam meet one of the critical conditions for such an upgrade, VNDirect said, hoping the Vietnamese stock market will be classified as an emerging market by global index providers FTSE Russel and MSCI in 2025 and 2026, respectively.

According to the broker, if the Vietnamese stock market is upgraded by the two prestigious rating organizations, index funds will allocate capital to it. The level of investment will depend on each fund's allocation strategy. The stocks expected to benefit the most will be those with the biggest proportions in the FTSE and MSCI indices.

In addition, VNDirect predicted that the NPS will help the Vietnamese stock market attract more foreign institutional investors as the country's regulations move closer to international standards and see improved market liquidity.

However, it noted systemic risks will also rise as securities companies may face payment risks. If many foreign investors fail to settle on time, that could force securities companies to liquidate collateralized stocks, creating significant selling pressure that increases stock price volatility, thus negatively impacting market stability.

Therefore, securities companies need to strengthen risk management related to clients, margin rates, and market conditions, it recommended, adding that these risks will be low given the reputation of foreign institutions and the long-term goal of maintaining investments in the Vietnamese stock market. However, it is undeniable that competitive pressure would gradually increase these risks over time.

To attract foreign institutional investors, VNDirect believed that securities companies will compete with each other based on transaction fees, pre-funding ratios, total pre-funding value, and service quality (information and reports).

It analyzed that offering lower pre-funding ratios will provide securities companies a competitive advantage, and the total pre-funding value will increase pressure on securities companies to raise their equity, as the debt-to-equity ratio is limited to no more than five times.

“Larger securities companies with low transaction fees and competitive pre-funding ratios will benefit from the NPS when attracting foreign institutional investors,” it remarked.

Vietnam's benchmark VN-Index rose 10.49 points, or 0.82%, to 1,287.48 on Wednesday, with trading value on the Ho Chi Minh Stock Exchange (HoSE) expanding 27% to VND22.791 trillion ($926.6 million).

Foreign investors were net buyers on the HoSE to the tune of VND525 billion ($21.35 million). They mainly net purchased FPT of IT giant FPT Corporation and VCB of state-owned lender Vietcombank.