Preparing for the Upcoming Review
Recently, the Prime Minister approved a plan to upgrade Vietnam’s stock market. The goal is to elevate it from a frontier market to a secondary emerging market this year and further to a high-level emerging market by 2030.
During the March evaluation, Vietnam met 7 out of 9 criteria for the upgrade. However, to achieve the upgrade, Vietnam must satisfy all 9 mandatory criteria and 2 non-mandatory reference criteria. The remaining two criteria—pre-transaction margin requirements for foreign investors and foreign ownership limits—have been addressed by regulatory authorities in recent months.
Specifically, the Ministry of Finance issued Circular 68, which includes provisions allowing foreign institutional investors to place stock purchase orders without requiring full payment at the time of order placement.
The government also issued Decree 245, amending and supplementing certain provisions of the Securities Law. This decree removes the regulation allowing shareholders’ meetings and charters of public companies to set foreign ownership limits lower than those stipulated by law and international commitments. This change aims to enhance market accessibility for foreign investors.
Vietnam’s stock market is approaching a crucial evaluation by FTSE Russell in early October.
Recently, during a meeting with leaders of the London Stock Exchange, Minister of Finance Nguyen Van Thang stated that Vietnam has been working to meet the upgrade criteria set by FTSE Russell, a key company owned by the London Stock Exchange Group.
Speaking to Reuters in London, Minister Thang expressed confidence: “I am quite optimistic about the upgrade. Fundamentally, we have met the criteria set by the index managers.”
A Boost for the Market in the Final Quarter
Vietnam’s stock market is gearing up for FTSE Russell’s upgrade review in early October. Mr. Nguyen The Minh, Director of Analysis at Yuanta Securities Vietnam (YSVN), believes Vietnam has met all 9 criteria, increasing expectations for a positive outcome in this review.
According to Mr. Minh, market upgrades always attract significant investor attention. Recent examples, such as Kuwait, Saudi Arabia, and Romania, show that post-upgrade market performance varies depending on each country’s economic and political context.
Kuwait’s market declined sharply in the three months following its September 2017 upgrade due to U.S. Federal Reserve rate hikes and the negative impact of oil prices on its economy.
Saudi Arabia’s market surged by 20% in the year after its March 2018 upgrade, driven by the dual effects of MSCI inclusion and anticipation of Aramco’s IPO.
Romania’s market initially dropped by 25% after its September 2019 upgrade due to the COVID-19 shock but later recovered impressively.
Performance of stock markets in countries recently reviewed for upgrades by FTSE Russell. Source: YSVN.
Mr. Minh notes that while upgrades typically have a positive short-term impact, long-term performance remains influenced by monetary policy, oil prices, and other factors. A key advantage for Vietnam is the Federal Reserve’s current rate-cutting cycle, which creates a favorable environment for foreign capital inflows.
One notable issue is the decline in foreign ownership on Vietnam’s stock market to just 12%. This is primarily due to the interest rate differential between USD and VND, global tech investment trends, a lack of new securities, and foreign ownership limits.
“The Fed’s rate cuts, along with a new wave of IPOs and the development of financial products, will be crucial in attracting foreign investors back to the market. These factors will also support Vietnam’s stock market upgrade,” Mr. Minh emphasized.
Mr. Tran Hoang Son, Director of Market Strategy at VPBank Securities, believes the upgrade’s impact has already been partially reflected in the market during late August and early September. This led to a slowdown in momentum and increased profit-taking pressure ahead of the National Day holiday on September 2nd.
According to Mr. Son, as the official announcement date approaches, the impact of the upgrade news will intensify. He expects FTSE Russell to confirm Vietnam’s upgrade on October 7th, potentially triggering a market rally.
Sectors such as financial services, securities, and banking are expected to resume their upward momentum. This will be supported by positive macroeconomic fundamentals, including economic growth, credit expansion, and sustained high profits across many industries.
