How to upgrade Vietnam’s stock market to emerging status?

The Vietnamese stock market is expected to advance from frontier to emerging status before 2025.

Focused objectives

Vietnam stock market upgrading has been acknowledged by the Ministry of Finance as one of its top priorities. This is indicated in the draft Strategy for Stock Market Development up to 2030 and the Scheme for "restructuring stock and insurance markets up to 2020 and orientation to 2025." Thus, before 2025, the Vietnamese stock market is expected to advance from frontier to emerging status.

Despite the optimism of analysts, the market upgrade's success is not contingent on the objectivity of state authorities but rather on the guiding principles, methodology, and standards of index providers like MSCI and FTSE.

However, as seen by the following outcomes, the State authorities have made significant efforts to speed up the market upgrade process:

First, in terms of the legal framework, the Securities Law of 2019 and its guiding documents, Investment Law of 2020 and Enterprises Law of 2020, have complied with the market upgrade requirements in terms of the percentage of foreign ownership, the requirements for investment flows, the availability of information, the ability for investors to subscribe and open accounts, clearing, and the introduction of new financial products.

Second, the State authorities regularly communicate with MSCI and FTSE to accept their standards and requirements. Vietnam has already completed a number of significant standards, but there are still a great deal to be done. The relevant ministries also need to be determined to address the stock market's current problems.

Difficulties to be untangled

To settle difficulties with market upgrade, the State Securities Commission (SSC) actively worked with the World Bank and FTSE Russell. Additionally, it will actively debate market upgrades like the foreign ownership rate or FX market regulation with relevant ministries, associations, market makers, and investors, particularly the State Bank of Vietnam and Ministry of Planning and Investment. Especially, it will continue to work with the relevant authorities to develop legal documents that will serve as guidelines for the Investment Law 2020, particularly with regard to the sectors, fields, and conditions of market access for foreign investors; to increase the transparency and public awareness of the foreign ownership rate; and to implement non-voting depository receipts (NVDR) into the FX market.

To streamline administrative processes and advance stock market IT application, which includes online transaction codes, the current regulations have been amended. The draft regulation of clearing transactions was most recently made available by the Vietnam Securities Depository Center. In August 2022, clearing is anticipated to be reduced to T2.

Dr. Pham Thanh Dat, a specialist at the Institute of Banking and Finance of the National Economics University, said that despite many efforts, Vietnam is still classified as a frontier market by MSCI and FTSE Russell, while other neibouring markets like Thailand, Indonesia, Malaysia, and the Philippines have long since been upgraded to emerging markets.

The modernization of the Vietnamese stock market is hampered by numerous issues. For instance, the stock market's operational system is still underdeveloped, which lowers investor confidence in the market.

The expansion of the stock market is also constrained as a result of the slowdown in the equitization and divestments of state-owned enterprises. The variety of products available on the stock market is constrained and inconsistent; there is a lack of professionalism and openness; sanctions are insufficiently deterrent, and knowledgeable investors make up a small fraction of the market.

The lack of bilingual documentation and the restricted liberalization of foreign exchange have a negative impact on the benefits received by foreign investors. Additionally, opening an account requires clearance from the VSD, clearing without an overdraft, and advance payment. Soon, bilingual information must be released by stock exchanges in order to improve Vietnam's stock market.