Upgrading the market for the sake of all participants

An upgrade to emerging status will not only help the stock market develop quickly, transparently and sustainably, but also attract huge foreign capital inflows, said experts.

Recently, the Government has directed to purge the market and improve the trading system's capacity, showing its determination to enhance the quality of the stock market.

The refinement is to protect investors and open a door for the Vietnamese stock market to be upgraded from a frontier to an emerging market.

Prime Minister Pham Minh Chinh has taken an interest in the development of the capital market and the stock market, including the matter of upgrading the market.

During a trip to attend the ASEAN-US Special Summit, on May 16, the PM visited the New York Stock Exchange (NYSE) – the largest stock exchange in the world – hoping it supports and shares experience to develop an effective and sustainable stock market in Viet Nam, and successfully build a regional financial centre.

PM Chinh also expected the NYSE and its Vietnamese partners to foster a sustainable, mutually beneficial partnership, contributing to making the Viet Nam-US comprehensive partnership more substantive and effective.

On the occasion, PM Chinh witnessed the awarding ceremony of two cooperation documents in the fields of finance, banking and investment funds between Vietnamese and US partners, including a cooperation document between the Vietnamese State Securities Commission (SSC) and the NYSE regarding support to upgrade the country's stock market and build a mechanism for investors to participate in both stock markets.

Previously, the PM chaired a conference on developing a safe, transparent, efficient and sustainable capital market to stabilise the macro-economy and ensure major balances of the economy.

At the conference, PM Chinh also asked the Ministry of Finance to immediately solve the order congestion situation and invest in technological innovation and digital technology application, while urgently implementing measures to upgrade the market from frontier to emerging status to attract investment capital, especially foreign investment.

Dominic Scriven, head of the Viet Nam Business Forum’s (VBF) Capital Markets Working Group, said that the move to purify the market is a great effort and determination from the Government.

As the goal is to build and develop a safe, transparent and sustainable securities market, cleansing the market will ensure the interests of businesses and genuine investors, increase the stock market's appeal, and attract more investment capital flows both at home and abroad.

Meanwhile, Pham Luu Hung, chief economist of SSI Securities Company (SSI), said that the move to purge the market in recent years raised expectations that the upgrade process will be easier. Hung hoped that in the next assessment, the Market Rating Organization (MSCI) will note some positive comments about what Viet Nam has done.

According to Minister of Finance Ho Duc Phoc, the ministry is currently working with international organisations to deploy solutions to upgrade the stock market by 2025 as per the set roadmap.

Huge foreign capital inflows

Analysts believe that the upgrade from frontier to emerging status will be an important driving force for the market.

Zafer Mustafaoglu, World Bank (WB) Practice Manager for Finance, Competitiveness and Innovation (FCI) for East Asia and Pacific, said that the capital market development is a long-term effort, and there is still much work to be done in Viet Nam.

Upgrading to emerging market status is not only an improvement in position, but also signals strong enhancement in quality with a solid market foundation.

Upgrading to an emerging market also attracts the attention of high-ranking international investors to Viet Nam. In the stock market, upgrading to an emerging market could result in an additional US$10 billion in new investment for the country. The first year alone can receive an additional $2-5 billion.

According to Nguyen Minh Tuan, General Director of AFA Capital Investment JSC, the criteria for upgrading from frontier to emerging status focus on two main factors – size and liquidity of the market (quantitative) and market access (qualitative).

In terms of size and liquidity, there are four criteria which are the number of companies included in the Standard Index, total market capitalisation, floating capitalisation and market liquidity. Viet Nam has almost met three standards, he said.

The main issue is qualitative standards. In the latest ranking in June 2021, there are nine criteria that the country has not yet met, including the ownership rate, ownership restrictions and equal rights of foreign investors. VNS