2022 stock market outlook: A few steps to an emerging market

At present, Vietnam has a few steps to move closer to an emerging market upgrade. However, there are some problems to be settled to reach this target.

In 1H22, Vietnam is in the preparation stage to officially put into operation the Vietnam Exchange (VNX).

In 1H22, Vietnam is in the preparation stage to officially put into operation the Vietnam Exchange (VNX). This is the focal point for general management of Vietnam's stock market, replacing the current model of two separate exchanges, which are the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). In addition, Vietnam is cooperating with South Korean partners to upgrade the securities trading system, which is expected to be completed in 1H22.

The government also plans to establish a central counterparty clearing house (CCP) (under VNX), which is expected to solve pre-funding issues that both the FTSE and MSCI have considered a bottleneck in upgrading Vietnam's stock market to Emerging Markets status. The new trading system also helps Vietnam conduct daily trading and sell pending stocks, which could further boost foreign inflows.

VNDirect expects Vietnam’s stock market to be announced to be included in the FTSE Secondary Emerging Market Index in September 2022. "In our best case scenario, we expect that the announcement of the inclusion would come in the Sep 2022 annual country-reclassification. In the base case scenario, we expect Vietnam’s stock market to be announced to be included in the FTSE Secondary Emerging Market Index in the September 2023 annual countryreclassification", VNDirect said.

Besides, VNDirect expects Vietnam’s stock market to be officially upgraded to the MSCI Emerging Market (EM) Index in May 2024, in its base case scenario.

"If the new trading system could be launched in 1H21F, we expect that Vietnam’s stock market could be added to the Watchlist for reclassification from Frontier Market status to Emerging Market status at MSCI’s Annual Market Classification Review in May 2023. Then, the inclusion of Vietnam in the MSCI Emerging Markets Index in the May 2024 annual review could be announced for official implementation in June 2024", VNDirect said.

However, MSCI pointed out that there are still some problems in upgrading the Vietnam stock market to an emerging market, such as the limit on foreign ownership ratio in some conditional industries. Vietnam's stock market is significantly affected by foreign "rooms." Documents are not bilingual; there is a lack of degree of liberalization of the foreign exchange market; registration to open accounts is not available; accounts still need VSD approval; clearing is done without overdraft and cash advance…