Ketut Ariadi Kusuma, Head of Finance, Competitiveness, and Innovation at the World Bank in Vietnam, expressed his satisfaction at the Stock Sector Conference this morning, February 28, when seeing the strong determination of the Vietnamese government in developing the market through a carefully crafted strategy and now a detailed implementation plan.
According to Ketut Ariadi Kusuma, Vietnam is currently classified as a frontier market by MSCI and FTSE Russell and is included in the frontier market index (FM). To date, the Vietnam market continues to account for the largest proportion in the FM index (over 30% of total AUM) and has reached the expected limit in the frontier index.
Since September 2018, Vietnam has been included in the FTSE Russell watchlist for a potential upgrade to emerging market status and is being reviewed by MSCI on a regular basis. The stock market upgrade will be a significant boost for the Vietnamese capital market, which will be considered reasonably accessible for foreign investors and have a market capitalization and attractive liquidity comparable to many similarly developing countries.
“The World Bank estimates that the stock market upgrade could bring up to $25 billion of new investment capital from international investors to the Vietnamese market by 2030, with some important conditions,” stated Ketut Ariadi Kusuma.
Specifically, firstly, Vietnam must be upgraded by both international index providers, FTSE Russel and MSCI. The World Bank appreciates and agrees with SSC’s current approach of prioritizing an upgrade to secondary frontiers by FTSE Russell; however, it is important to note that most of the new investment capital will come from the MSCI upgrade.
Secondly, considering resolving the foreign ownership limit (FOL) constraints and continuing equitization of large state-owned enterprises. Solutions include improving disclosure, increasing access to stocks that have reached the limit, and most importantly, increasing the foreign ownership limit.
If the FOL remains a constraint, Vietnam may only receive a maximum net inflow of $5 billion, as the market would then account for less than 1% of the global EM index. However, if the FOL is fully resolved, Vietnam’s proportion in the EM index could increase by more than 1%, potentially bringing in an additional $8-15 billion.
Thirdly, there needs to be a healthy global investment environment for Vietnam to also benefit from natural growth of global capital inflows into emerging markets, estimated to grow around 7% annually. This could mean an additional $8-12 billion investment by 2030.
The World Bank also emphasized that developing the domestic investor base is crucial to accompany and balance the capital inflows from foreign investors, with diversification of investment of the social insurance fund (by VSS) being a key.
Diversifying VSS investments into corporate stocks not only helps the investment fund perform better in the long term but also expands the domestic investor base and helps stabilize and develop the domestic capital market. A modest allocation to corporate stocks by VSS could mean billions of dollars in additional funding for the business sector. Comprehensive pension reform can bring in up to $25 billion in new investment into the business sector by 2030.
Furthermore, reforms in the insurance and investment sectors, if properly implemented, could bring an additional $28 billion to the business sector through the capital market. Altogether, we estimate the potential for new capital mobilization for the capital market to be $78 billion.
The increasing investment demand in Vietnam emphasizes the need for accompanying high-quality financial products, especially corporate stocks and bonds. This underscores the importance of a healthy ecosystem, including strict supervision, clear information disclosure, and reliable credit ratings…
This ensures that the new investment capital flowing into the stock market will benefit efficiently operating companies in need of capital for growth, such as recapitalizing banks, infrastructure projects, or innovative industries, and not just current shareholders.
“The World Bank is ready to support Vietnam on all these fronts. We hope to achieve a milestone success this year,” emphasized the representative from the World Bank.
