In June last year, Vietnam’s equity market failed to be added to Morgan Stanley Capital International’s (MSCI) watch list – the US independent provider of research-driven insights and tools for institutional investors, for classification review for a possible lift from a frontier market to an emerging one.
However, according to the latest report released by the State Securities Commission (SSC), Vietnam almost meets MSCI’s quantitative requirements to be added onto its watch list for a possible future upwards reclassification.
The country has seven stocks that have satisfied MSCI’s quantitative requirements in terms of market size and liquidity.
Vietnam has 22 stocks that meet MSCI’s requirement in capitalisation of US$1.59 billion, including the Asia Commercial Bank (ACB), dairy firm Vinamilk (VNM), real estate developer Vingroup (VIC), consumer staple Masan Group (MSN) and steel maker Hoa Phat Group (HPG).
Regarding capitalisation of the circulating stocks, MSCI set out a standard of 797 shares for the emerging market. Vietnam has 16 enterprises that meet the standard, including ACB, Saigon Hanoi Commercial Joint Stock Bank (SHB), ceramic firm Viglacera Corporation (VGC), PetroVietnam Technical Services Corporation (PVS), Vinamilk (VNM), Vingroup (VIC), Masan (MSN) and Hoa Phat (HPG).
Vietnam has 276 enterprises that have stock liquidity equal to 15 per cent of ATVR (Annualised Traded Value Ratio), which is also a criterion MSCI sets out for an emerging market.
Essentially, Vietnam’s securities market had satisfied MSCI’s quantitative requirements in terms of market size and liquidity, SSC said.
However, it was the qualitative condition that is the decisive factor for an upgrade, not only by MSCI but also by other classification firms, such as FTSE and S&P, it added.
According to Bao Viet Securities Co (BVSC), regarding Vietnam’s stock market, MSCI recognised an improvement for the “investor registration and account set up” criterion, while maintaining the assessment for all remaining criteria (including nine requirements for improvement).
“In general, from our view, the results of the MSCI review indicate slow improvement in Vietnam’s stock market. Even in comparison to the two frontier markets in the region which are Bangladesh and Sri Lanka, Vietnam still needs to improve the most,” BVSC said in a recent report.
According to SSC, there were several major factors that led to the result, including the lack of openness to foreign investors, few English-language issuances of information disclosures made by local companies and problems with the trading mechanism.
Foreign capital inflow
Although the direction of foreign capital inflow is becoming increasingly unpredictable in 2018 due to many external factors, experts say that Vietnam is still an attractive destination for foreign investors.
Last year, a wave of foreign investors’ capital was withdrawn from emerging markets to shift towards the US market due to the increasing attractiveness of the US dollar but Vietnam faced a somewhat better situation than its counterparts such as Indonesia, Thailand and the Philippines.
Dominic Scriven, Chairman of fund management company Dragon Capital, quoted a recent survey indicating that in the first half of last year, foreign investors withdrew $5.6 billion from the Thai market, $3.7 billion from Indonesia and $1.6 billion from the Philippines.
Meanwhile, according to data from Vietcombank Securities Company (VCBS), foreign investors still net bought nearly $1.8 billion on the Vietnamese stock market.
According to VCBS, regardless of the general withdrawal trend of foreign capital in emerging markets, cash flow from countries such as Japan and the Republic of Korea into Vietnam was still trending upwards.
FTSE’s watch list for upgrade
In its annual country classification review published late September last year, the UK-based financial and business information firm FTSE Russell (FTSE) said Vietnam “is currently classified as a Frontier market and is being added to the watch list for possible reclassification as Secondary Emerging market.”
Therefore, according to Viet Dragon Securities Corporation, Vietnam’s market may be upgraded to the emerging market status by FTSE in 2020 as it requires at least one year for FTSE to seek advice from the international investment community and another year for investment firms to prepare for the changes and portfolio restructuring.
Following the upgrade, a wave of passive capital (investment that tracks a market-weighted index or portfolio) of $300 million will be poured in to the Vietnamese market, VDSC forecast.
The new amended draft law on securities, supposed to be submitted to the Government in the second quarter of 2019 and submitted to the National Assembly for consideration and approval in the fourth quarter of 2019, was also expected to help bolster the review process for the Vietnamese market, it added.