On September 21, FTSE Russell officially moved Vietnam from the Frontier Market to the Secondary Emerging Market, a milestone closely monitored by domestic investors for nearly a year.
According to the Analysis Department of Agribank Securities Company, market upgrades open a new chapter, creating a milestone for Vietnam to enter an era of deep integration with global capital flows. According to calculations, the Vietnamese market may attract 7 - 9 billion USD of foreign capital disbursement in the next 1-2 years, including 2-3 billion USD of passive capital that must be disbursed. The event is expected to become one of the main driving forces of the market in the coming period.
However, lessons from markets that have undergone upgrades similar to Kuwait, Saudi Arabia, Qatar, UAE, Romania or Pakistan show a common pattern. Most price increases are usually reflected before the effective date and the risk of "selling when good news has come" appears in most cases, even as Pakistan fell more than 23% from its peak in the upgrade year. This is an important reminder that upgrades create a medium-long-term foundation but do not guarantee a straight upward line immediately after September 21.
Besides the opportunities of upgrading, experts believe that the risk group may affect the Vietnamese stock market in the coming time.
First, if inflation in major economies persists, the central bank may maintain a cautious monetary policy. High international interest rates and bond yields, along with a strong USD, could put pressure on exchange rates and cost of capital.
Second is the risk of capital flows and market fluctuations. In the period when funds restructure their portfolios according to indexes, cash flow buying and selling may occur simultaneously. Therefore, a sudden increase in liquidity in a few sessions does not necessarily reflect long-term investment capital flows.
Finally, risks from expectations and valuation. If upgrade expectations have been significantly reflected in stock prices, the market may need time to absorb information and return to assess the actual profit prospects of the business.
Dr. Nguyen Duy Phuong - Senior Director of DG Capital Financial Analysis Division - emphasized that the immediate challenge for Vietnam after being upgraded in securities is to successfully maintain its new position and retain foreign capital. Currently, the capitalization structure of VN-Index still depends significantly on some large-cap stock groups such as banks, oil and gas and some large enterprises. Therefore, instead of trying to accurately predict market developments, investors should prepare many scenarios to proactively respond.
Regarding the investment strategy after the upgrade event, Dr. Nguyen Duy Phuong recommends that investors manage the proportion and choose businesses, avoid putting all investment decisions into the upgrade schedule. First, investors must maintain leverage levels suitable to their ability to withstand fluctuations, especially when the Fed just raised interest rates on September 16 and the tightening cycle shows no signs of ending. At the same time, investors maintain the necessary cash to avoid being forced to sell when the market adjusts.
In addition, priority should be given to businesses with good business cash flow, healthy balance sheets and reasonable valuation. The valuation level is supporting this approach: Market P/E is around 12 times, if not including the Vingroup group, it is still about 10 times - the lowest level in 10 years.
For stocks expected to benefit from FTSE, it is necessary to see how much expectation the price has reflected and how large the expected buying volume is compared to the liquidity of that stock itself. Upgrade does not replace the requirement that businesses must increase profits, improve governance and create sustainable cash flow," Dr. Phuong said.
