Two major bottlenecks in upgrading Vietnam's stock market

Mr. Vu Chi Dung, Director of the International Cooperation Department, State Securities Commission. Photo: Thu Hien

Could you please tell us what conditions needed for the Vietnamese stock market to meet the upgrade criteria?

Regarding the assessment organization of upgrading the Vietnam stock market, we recognize two organizations MSCI and FTSE Russell. These two organizations have identical criteria but also have some different criteria in terms of assessment level.

Basically, these two organizations are based on two groups of criteria: qualitative and quantitative. The quantitative criteria are related to the size of the market, the size of each enterprise and the size of some large enterprises as the key enterprises in the index basket of these organizations, which are publicized on the websites of these two organizations.

For the Vietnamese market, Vietnam's quantitative criteria have basically been met. But the importance is qualitative criteria related to policies and investors' experiences with 12 specific criteria. To upgrade Vietnam's stock market, two key criteria that should be focused are pre-trading margin requirement and foreign investor ownership ratio on Vietnam stock market.

Could you clarify more about the two biggest bottlenecks in upgrading the stock market?

As I mentioned above, two major bottlenecks from the perspective of MSCI and FTSE Russell are pre-trading margin and foreign investor ownership ratio.

For pre-trading margin, the nature of the issue is that money and securities are exchanged at the same time, meaning that the buyer must have full funds before placing a trade order. The key point that investors are concerned about is that money must be transferred into Vietnam 100% before placing a transaction order, not at the time of payment.

The second is the ownership ratio of foreign investors. Foreign investors all want their ownership ratio in the market to be expanded, with more opportunities for foreign investors to invest in unlisted as well as listed enterprises. Besides, they need to have information about the ownership ratior of foreign investors in a specific enterprise when they invest.

Those are two important contents in the process of upgrading Vietnam's stock market from frontier market to emerging market. If these two problems are solved, investors will also see investment opportunities and comparisons among markets. From the perspective of frontier markets, Vietnam’s stock market has quite large scale and high position, approximately equivalent to emerging markets. That proves that investors have high expectations for the Vietnam’s stock market. New investors also want to invest in Vietnam's stock market, so it is necessary to upgrade to emerging market and offer solutions for the two major problems.

Regarding solutions related to trading margin, we are researching solutions suitable to Vietnam’s conditions in the direction of removing the requirement to check the investor's account and account balance before placing a trading order and abolishing pre-trading margin requirements. We will also work with the Ministry of Planning and Investment on publishing information about the ownership ratio of foreign investors so that investors can easily access it.

For listed enterprises, we require them to disclose information about their foreign investor ownership ratio, the specific industries in which the enterprise is operating to determine the ownership ratio, which requires enterprises to focus on into core business activities. Enterprises must publish information at the Stock Exchange to help foreign investors access easily.

To upgrade the stock market, in addition to the SCC, the participation of many other related agencies is needed. What is overall solution for Vietnam's stock market to be upgraded soon, sir?

To upgrade the stock market, the efforts of one management agency are not enough, because foreign investors look at the market from many different aspects. And the solving the two big problems mentioned above require the participation other ministries and agencies.

For example, the issue of the ownership ratio of foreign investors involves the Ministry of Planning and Investment regarding the publication of information (in English) on the ownership ratio of foreign investors in specific industries. We really hope that the Ministry of Planning and Investment will take on this issue so that foreign investors can access and Vietnamese enterprises themselves can determine the ownership ratio of foreign investors in their enterprises.

Regarding pre-trading margin requirement, foreign investors as large investment funds that must convert foreign currencies to Vietnamese Dong upon investment. They are very interested in Vietnam's foreign exchange market as well as foreign exchange risk hedging tools on the market to ensure that they have tools ready to convert foreign currencies into Vietnamese dong and vice versa when they withdraw capital from Vietnam conveniently and economically.

In addition, regarding the role of depository banks participating in the stock market as managers of foreign investors' assets under the trust of foreign investors, these banks act as a service provider on asset management, asset assurance as well as asset custody of foreign investors in the market in the field of securities. Therefore, the coordination of the State Bank is needed in researching appropriate policies to facilitate foreign investors to participate, specifically foreign depository banks and foreign securities service providers. Along with that, there are also depository banks as Vietnamese banks, and commercial banks participating in clearing activities on the stock market for foreign investors.

What impact will the upgrade have on the stock market and the Vietnam’s economy in sir?

The upgrade has a huge impact on the stock market and the economy. First of all, according to the World Bank's assessment, if Vietnam’s stock market is upgraded, the market size in five years could reach US$7-7 .5 billion, and the scale will expand as investors have more interest in the market.

Second, the upgrading will facilitate the correct assessment of the value of businesses and the value of stocks because the participation of many investors will assess the intrinsic value of stock prices.

Third, the investor base will change. Currently, most Vietnamese stock investors are individual investors. With the participation of large funds in the market, the number of institutional investors will increase, which will facilitate the restructuring of the investor base, increase the stability of the market as well as investors, and avoid psychological impact.

Fourth, if the stock market is upgraded, the reputation of Vietnam's capital market will also change because on the world capital market map, there is the presence of Vietnam's stock market in emerging markets.

Fifth, upgrading the stock market is a reflection of the development of the economy and will be part of the support for business operations and the economy.

Sincerely thank you!