Optimism goes on for market status hike

Optimism goes on for market status hike

The domestic stock market’s upgrade journey is gaining renewed momentum, with encouraging signs emerging from ongoing regulatory reforms and increasing recognition from global index providers and international organisations.

In a strategic effort to advance the objective, the Ministry of Finance (MoF), in partnership with the World Bank (WB) and the Asia Securities Industry and Financial Markets Association, hosted a dialogue conference with international institutional investors in Hong Kong on April 7-10.

Optimism goes on for market status hike, photo Le Toan

The conference was led by Deputy Minister of Finance Nguyen Duc Chi and saw the participation of Vu Thi Chan Phuong, chairwoman of the State Securities Commission (SSC), along with nearly 60 delegates from leading international ranking organisations, global investment funds, and market regulators.

Deputy Minister Chi highlighted the importance of upgrading Vietnam’s stock market to an emerging market, emphasising that both the MoF and the SSC have laid out comprehensive strategies designed to foster a secure, transparent, and resilient securities market, with a clear roadmap for long-term development.

“One of the key objectives for Vietnam’s long-term economic growth is upgrading the stock market from a frontier to an emerging market. This goal is central to our broader market development strategy,” Chi stated.

Among recent milestones, the introduction of Circular No.68/2024/TT-BTC has emerged as a key regulatory reform aimed at enhancing foreign investor access to Vietnam’s stock market. The circular removes the requirement for foreign institutional investors to fully pre-fund their securities transactions before order placement, an issue that had long constrained market liquidity and deterred broader participation.

According to a representative of the SSC, the circular aligns with the criteria set out by FTSE Russell for upgrading the market’s status.

“The settlement cycle and the handling of failed transactions have been substantially addressed, thanks to Circular 68. This change enables foreign investors to trade securities more efficiently, ensuring the integrity and security of the market,” said the representative. “The implementation of this policy has already demonstrated positive results, with over 50 per cent of foreign institutional investor transactions since November 2024 using the new mechanism.”

At the conference, representatives from international organisations commended the Vietnamese government’s strong commitment and proactive approach in advancing regulatory reforms, as well as the tangible progress already achieved.

Julian Casal, senior financial sector economist at the World Bank, noted the importance of Vietnam’s recent reforms. “Since the removal of the pre-funding requirement in 2023, the market has seen tangible improvements,” Casal said. “The results of these reforms are evident, with foreign institutional investors now able to engage more easily in the market, a clear indication of Vietnam’s commitment to achieving its market upgrade goal.”

The latest market classification report released by FTSE Russell on April 9 further reinforced the momentum behind Vietnam’s upgrade efforts.

While the country remains on the watch list for a reclassification from frontier to secondary emerging market status, FTSE Russell acknowledged substantial progress in implementing the non pre-funding model. This mechanism enables local securities firms to provide foreign institutional investors with the necessary capital to execute securities purchases without the need for upfront funding, removing a key barrier to foreign participation.

In addition to praising Vietnam’s efforts to enhance market accessibility and liquidity, particularly through ongoing upgrades to its main trading platform, FTSE Russell also highlighted remaining challenges. These include streamlining the account registration process, which currently poses delays for foreign entrants, and developing more flexible mechanisms to facilitate transactions in securities that have reached or are nearing foreign ownership limits.

The outlook for Vietnam’s stock market upgrade remains positive, with many analysts forecasting that ongoing regulatory enhancements could significantly improve the country’s chances of being reclassified in FTSE Russell’s upcoming September review.

Gary Harron, director of Securities Services at HSBC Vietnam, expressed strong confidence in the potential impact of Vietnam’s anticipated stock market upgrade, noting that it could attract significant foreign investment. “FTSE Russell’s upgrade would bring in approximately $6 billion in foreign investment, which is a substantial boost to Vietnam’s capital markets,” Harron told VIR.

He added that while Vietnam may have met the minimum fixed criteria, the standards for qualitative feedback from international investor communities have risen, particularly in comparison to the upgrade processes of neighbouring ASEAN markets. HSBC’s experience shows that institutional investors expect continuous developments to ensure the market’s efficiency, safety, and scalability.

“Considering these factors, along with ongoing policy reforms driven by international community input, Vietnam’s market development story remains very positive,” Harron emphasised. “Regardless of the outcome, we remain confident in the continued evolution of the stock market, benefiting Vietnam’s broader economic landscape.”

VIR