Korean experts are working with domestic investors to study stock market fluctuations (Photo: SGGP)
On June 9, 2022, Morgan Stanley Capital International (MSCI) announced the results of the 2022 Global Market Accessibility Review, including a detailed report covering market accessibility assessments for 84 markets. Vietnam is not included in the consideration list to be upgraded from frontier to emerging status.
Notably, in its June 2022 report, out of 9 criteria that Vietnam's stock market did not meet, MSCI emphasized the criteria on foreign ownership limitation (foreign room) and said that this bottleneck is affecting about 15 percent of stocks on the Vietnamese stock market.
In fact, in 2021, foreign investors net sold more than VND62,300 billion on Vietnam's stock market. According to experts’ explanation, due to the fear of the epidemic, investors want to collect their money back but they face the fact that many groups of industries that they are interested in are limited in terms of foreign ownership.
A representative of Dragon Capital Fund analyzed the net selling of foreign investors because the Vietnamese stock market has not been included in the list of emerging markets in 2021, so it has not been able to attract capital from foreign investors.
Around the world, the tendency of foreign capital to invest in frontier markets is decreasing.
At the Vietnam Economic Forum held in Ho Chi Minh City in June 2022, Mr. Don Lam, General Director of VinaCapital Group, shared that foreign investors such as the US, Europe, and South Korea are very interested in Vietnam’s stock market because it is estimated to be more attractive than other markets in Southeast Asia.
The regulation on foreign ownership limitations is hindering the development of the Vietnamese stock market, limiting the number of bonds that foreigners can invest in; therefore, foreign investors will pay expensive fees if they want to invest more. For example, the banking sector which is the largest and most liquid industry group in the market is always an area of interest to investors but is limited to 30 percent of foreign ownership.
Stock market experts also said that the problem of limiting the rate of foreign ownership in many other key industries such as logistics, and seaports are also a bottleneck. If Vietnam does not create more favorable conditions for foreigners to buy shares, they will shift their investment to other markets.
Regarding the upgrade of Vietnam's stock market, the Ministry of Finance affirmed that this is one of the goals that Vietnam's stock market is aiming for. The Ministry of Finance has also included this goal in the project ‘Restructuring the stock market and insurance market to 2020 and orientation to 2025’ and the draft strategy to develop the stock market to 2030.
Accordingly, Vietnam aims to upgrade the stock market from a frontier market to an emerging market before 2025.
According to the Ministry of Finance, the market upgrade does not depend on the management agency’s will because the assessment, classification, and ranking must follow the principles and criteria of organizations such as MSCI or the Financial Times Stock Exchange (FTSE).
Currently, based on the criteria required by the rating agencies, Vietnam has achieved many important criteria, but it needs close coordination amongst relevant ministries and sectors to remove difficulties to help the market be upgraded soon.
The Ministry of Finance also aims to focus on completing and operating a new information technology system (KRX system) for the stock market. From the infrastructure foundation, it will develop, diversify, increase the quality of products in the market, and attract foreign investors and related infrastructure.
State management agencies’ recent moves have shown their great determination to upgrade Vietnam's stock market. The State Securities Commission of Vietnam recently worked with the World Bank and the FTSE to remove obstacles to the upgrade of Vietnam's stock market. The commission will discuss with ministries, associations, market members, and investors to remove problems such as foreign ownership rate and amend some regulations on the foreign exchange market.
Next, the Vietnam Securities Depository Center also took opinions on the draft regulation to replace the Regulation on clearing and settlement of securities transactions and the regulation on depository members.
It is expected that in August 2022, the time for settlement and clearing of securities will be shortened, investors can do T+2 transactions one day shorter than currently, liquidity is hence hoped to improve.
This regulation is also in line with international practices, so it will attract investors to participate, including foreign investors, and will also have an important impact on the upgrade of Vietnam's stock market in the near future.
Currently, the capital size of funds that can be allocated to frontier markets is about US$95 billion. To emerging markets, it is about $ 6.8 trillion. If Vietnam is upgraded to an emerging market, the Southeast Asian can receive inflows of hundred of billions of dollars.
