Public firms key to help Vietnam stock market upgrade to emerging status

Upgrading Vietnam’s stock market to emerging status not only depends on the efforts of the securities industry or market authorities, but also public firms who are key to realize such goal.

Investor at a securities center in Hanoi. Photo: Cong Hung

Director of Stock Market Development Department under the State Securities Commission of Vietnam (SSC) Ta Thanh Binh shared her view at a conference discussing measures to boost Vietnam’s equity market on March 30.

“Only when local enterprises operate in a transparent manner and fully comply with the International Financial Reporting Standards (IFRS), they would be the core to boost the development of the stock market and eventually leading to market upgrade,” said Binh.

Vietnam is currently listed in the Frontier Market group by two major providers of financial services FTSE Russell and MSCI.

In September 2018, FTSE Russell added Vietnam into its watchlist for possible upgrade to Secondary Emerging Market. However, in the agency’s latest review last September, Vietnam only met seven out of the nine criteria.

In this regard, the country does not meet the “Settlement Cycle (DvP)” criterion which is currently rated as “Restricted”. This is due to the market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution.

Meanwhile, since by default, the market does not experience failed trades, the “Settlement – Rare incidence of failed trades” criterion is unrated.

Referring to MSCI criteria, Vietnam is required to improve seven out of 17.

Binh, however, noted that as Kuwait was upgraded to the Emerging Market status, Vietnam has seen its weight increase in the Frontier Markets Index and become the most important market in this category.

“Investment funds tracking frontier markets, such as Schroder ISF Frontier Markets Fund, Coeli Frontier Markets Fund, and T.Rowe Price Frontier Markets Fund are increasing their weight of Vietnamese stocks,” Binh informed, adding higher credibility is seen as a favorable factor for Vietnam’s upgrade.

Among key measures to boost the country’s upgrade prospect, Binh pointed out a number of laws  being enforced since January 1, 2021, that ensure a more transparent investment environment, including the revised Securities Law, the Law on Investment and the Law on Enterprises.

The SSC representative stressed the necessity to soon put new amendments of these laws into practice to ensure the healthy development of the stock market, saying this is key to better protect lawful rights of investors.

“The SSC is in the process of submitting to the prime minister strategy for the development of the stock market in the 2021-30 period, which would serve as the basis for its long-term development,” Binh added.

Binh also expected stronger efforts from government agencies in enhancing the freedom on the foreign exchange market, reducing state intervention into enterprises’ operation, and further opening the market for foreign investors.

SSC Chairman Tran Van Dung in a conference last December said the local stock market is in favorable position to get upgraded to emerging status before 2025, a target set by Prime Minister Nguyen Xuan Phuc.