Solutions to upgrade Vietnam stock market

Leader of the Ministry of Finance, People's Committee of HCM City, State Securities Commission, HoSE and market members participated in the 2024 Opening Ceremony.

>> Efforts to remove obstacles to upgrade the stock market

According to Nguyen The Minh, director of analysis at Yuanta Securities Vietnam, two important concerns must be solved in order for the Vietnam stock market to be upgraded: the removal of pre-trading margin requirements and the easing of foreign investor ownership restrictions.

Access to new management approaches

Vietnam's stock market is positioned as a frontier one, reflecting the highly speculative character of transactions, which means that funds accessing it are frequently tiny in scale and high in speculation.

As a result, Nguyen The Minh believes that stock market upgrades will create chances to reduce speculation, attract more reliable flows of foreign funds, and boost the interest of active funds while also facilitating capital transfers.

In today's economic environment, the presence of foreign investors provides not only a foundation for the growth of domestic enterprises, but also a chance for innovation and the acquisition of new technology. This allows domestic stock businesses to adopt innovative management practices.

Issues to be improved

Globally, the three largest market ranking organizations are Morgan Stanley Capital International (MSCI), FTSE Russell, and S&P Dow Jones, which play an important role in defining foreign investors' perceptions of nations, markets, and enterprises.

The market rankings produced by the FTSE and MSCI are not only useful for judging a country's importance in the global economy, but they also have a considerable impact on worldwide standards. The removal of the pre-trading margin requirement is one of the most essential factors in upgrading the stock market. Other criteria, such as the foreign ownership limit  (FOL) and the procedure for opening an account for foreign investors, are also being reviewed to improve transparency and benefits for investors, albeit these variables are not yet included in the official rating criteria.

Similarly, MSCI stated that Vietnam needs address two obstacles so as to improve its stock market, one of which is the registration and account opening procedure for foreign investors, which must be authorized by the Vietnam Stock Exchange and Securities Settlement Corporation. Furthermore, the dissemination of regulatory and business data in English should be increased to guarantee that foreign investors have timely access.

Furthermore, the size of the Vietnamese stock market is restricted, owing in part to the delayed pace of privatization and divestment from state-owned firms. The emergence of too many business lines regulated by law with special business requirements has unintentionally created a barrier for foreign investors.

>> Ministry of Finance outlines tasks for upgrading stock market by 2025

Synchronize multiple solutions

Nguyen The Minh stated that, in the short term, the rapid implementation of the KRX system is viewed as a significant step in raising some of the market's critical qualitative requirements. In addition to technical updates, the continual development of the legal framework must be stressed. This involves a full examination and amendment of the Securities Act and related guidelines, as well as the addition of new rules aimed at attracting foreign investment and contributing to the long-term growth of the capital market.

The early issue of guidelines on Non-Voting Depository Receipts (NVDRs) is seen to be an effective approach for increasing foreign ownership in the Vietnam stock market. The NVDR lets international investors to acquire shares without being restricted by ownership laws, so resolving a significant barrier to attracting foreign investment.

In the long run, Nguyen The Minh believes that amending the Business Law to minimize the number of conditional business lines is an important step. This will provide a chance to enhance foreign ownership in Vietnamese enterprises, resulting in a more transparent and appealing business climate.

Furthermore, with over 1,700 shares with low capitalization on the Vietnam stock market, this raises the issue of selection and quality management prior to listing. This not only enhances the stock market's image and trustworthiness in the eyes of foreign investors, but it also helps to provide the groundwork for the Vietnam stock market's long-term development.