Expected upgrade of stock market signals greater investment

The expected upgrade provides Vietnam’s stock market with opportunities to attract more foreign capital

Potential market

Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council and chief economist of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said Russia had a 1.5-percent weighting in the MSCI Emerging Markets Index. The gap it left due to the war with Ukraine opens up opportunities for other potential markets. Specifically, Gulf countries are expected to receive US$1 billion in passive investing, while the Republic of Korea (RoK) stock market is estimated to receive an additional US$3.4 billion from active and passive funds. In Southeast Asia, an opportunity for Vietnam to be upgraded to an emerging market is clearer as the country is considered a potential watch list market.

According to the MBS Securities Company, Vietnam’s inclusion in the FTSE Emerging Markets Index will help the country attract at least US$355 million in passive investing. In the most optimistic scenario, MBS believes that the Vietnamese stock market could record liquidity level as high as VND31.814 trillion in 2022.

Easing bottlenecks

Petri Deryng, portfolio manager of PYN Fund Management, said that once being officially upgraded, cash flows into the Vietnamese stock market could grow 50-fold.

Big foreign investors have been looking at the Vietnamese stock market with optimism. VinaCapital has advised the Jih Sun Vietnam Opportunity Fund on investment in Vietnam worth about US$200 million, and an additional US$150 million down the line.

Dr. Vo Dinh Tri from the University of Economics Ho Chi Minh City said Vietnam could meet the criteria to enter the FTSE secondary emerging market status, but the problem lies in its determination. Vietnam’s goal of becoming an advanced emerging market by 2025, on par with Thailand, Malaysia and Chinese Taipei, requires other efforts, not just in infrastructure. Tri also said existing bottlenecks lie in the clearing and custody mechanism.

The Vietnamese stock market currently ranks first in the frontier market group. A number of laws are creating a legal basis for market development, especially the launch of the Vietnam Stock Exchange on the basis of merging the Ho Chi Minh Stock Exchange (HoSE) and the Hanoi Stock Exchange (HNX). According to the FPTS Securities Company, Vietnam will be on the MSCI watchlist in the middle of next year. The upgrade will be announced by 2024 and the market will be officially upgraded by 2025.

Once upgraded to an emerging market, foreign investors will pay greater attention to the financial sector, offering opportunities to attract large cash flows. In addition, real estate, consumer goods and retail sector stocks will continue to attract foreign organizations and investors.