How will new rules impact the VN DIAMOND?

HOSE made revisions on VN DIAMOND index criteria of the listing period, market capitalization, liquidity, and foreign ownership limit which will be effective since October 2021.

Liquidity ratio of VNDiamond stock (data as at Jun 2021) - Lower liquidity stock will be reducing their weight in VNDiamond index

VN Diamond- the largest ETF

In mid-April 2021, HoSE announced the stocks portfolio in VN Diamond. Therefore, KDH share was removed from this portfolio because it no longer met the foreign room requirement. In contrast, TCM and 5 banking stocks, such as VIB, EIB, ACB, MSB, and LPB were added to the portfolio.

This result is mostly predicted by securities companies, except for LPB which is an unreported case. Thus, the number of constituent shares of VN Diamond has been increased from 13 to 18. Currently, VFMVN Diamond ETF fund with a scale of over 10,600 billion VND is using this set of indicators.

VNDiamond ETF, tracks on VN Diamond index, has recorded an impressive growth of 149.1% ytd in net asset value (NAV) to US$573mn, to the largest ETF so far. Besides, VN Diamond index has surged 35.9% ytd, outperforming than that of VN Index (10.7%) and VN30 Index (25.9%).

Impact of new rules

HOSE has announced some changes in VNDiamond index rules on 15 Jun 2021 and is expected to take effect in Oct 2021 review period. In VNDirect’s view, the new rules will tighten some criteria of listing time, capitalization, liquidity, and foreign ownership limit to enhance the quality of this index.

According to VNDirect’s estimation basing on new rules, some stocks will be affected by new rules as follows:

First, new rules require an eligible stock of VNDiamond must have free float-adjusted market capitalization larger than VND2,000bn. This means CTD and TCM may be excluded from VNDiamond index if they cannot maintain free float-adjusted market capitalization greater than VND2,000bn in the next review period.

Second, new rules apply liquidity ratio into index calculation. This means stocks with a lower liquidity ratio will be reduced their weight in VNDiamond index. Based on data in Jun 2021, the weight of EIB, VIB, MWG, and PNJ will likely be reduced due to their current low liquidity ratio.

Third, new rules also tighten the VNDiamond’s FOL ratio screen, leads to stocks with foreign ownership limit s set by the company will have less chance to enter VNDiamond. For example, SHB and BVB are planning to lower their foreign room limit to 10% and 5% respectively, and to move to HOSE in the future. Even though these stocks always maintain the full room, they will also not be eligible to enter VNDiamond.