Upgrading the stock market is not a new story, however, its importance to prospects and the movement of the Vietnamese stock market is always considered and long-term mentioned in topics on market prospects.
Vietnam has been on the FTSE's upgraded watch list since 2018, nearly 7 years ago. It is a long process of improving outstanding issues in the market to meet the rating criteria of rating organizations.
According to Mr. Huynh Anh Huy, Director of Analysis of KAFI Securities Joint Stock Company, the criteria for quantity and scale, the Vietnamese stock market is almost equivalent to or even slightly better than some other emerging stock markets. Typically, our market capitalization is almost double and the average liquidity is nearly 10 times higher than the Philippines. Thus, it can be concluded that the reason why rating organizations are still hesitant to include Vietnam in the emerging market index basket is based on determination criteria.
In the most recent report by FTSE in March, the organization mentioned two main issues. First, the payment cycle (DvP) and costs related to failed transactions are still being classified as "restricted".
The second issue is related to the ability of foreign investors to access the market, related to the time to open trading accounts and the limitation in trading for stocks that have reached or are about to reach the threshold of foreign ownership ratio.
The management agency has also resolved some limitations that FTSE previously mentioned in its September 2024 report, typically the non-prefunding (NPF) solution to help solve the problem of depositing when trading by foreign organizations.
The official operation of the KRX system is expected to completely solve the problem of payment cycle (DvP), helping the Vietnamese market only have one additional qualitative criterion that needs to be met, which is to be eligible to be included in the group of emerging markets.
Accordingly, the criterion for the ability of foreign investors to access the market is the final item that needs to be completed on the roadmap to bring the Vietnamese market up to the group of emerging markets. Expanding foreign investors' access to the Vietnamese market is a difficult problem for management agencies.
The two organizations FTSE and MSCI often use June and December data for their periodic assessment reports. It is now July and compared to the FTSE's March review, the highlight of the change in the market is the KRX system and the clearing trading system. Therefore, there needs to be a significant change from the management agency, otherwise the probability of FTSE announcing Vietnam to satisfy all upgrading criteria is quite low.
However, the waiting period is an opportunity for us to prepare appropriate investment strategies to adapt to market upgrading. Currently, emerging markets in the ASEAN region are being allocated an average of 10 billion USD by open-end funds and index funds, which is a huge cash flow for the blue chip group and is expected to have a strong impact on market valuation according to theory.
In fact, information about upgrading is not a factor that helps the stock market go up even though there will be foreign capital participating in the market, on the contrary, information about market downgrading is not a factor that causes the market to operate negatively. The fundamental factor still depends on the internal nature of the economy such as: political situation, natural disasters, macro policies, currency, and profitability of the enterprise", Mr. Huynh Anh Huy, Director of Analysis of KAFI Securities JSC, expressed his opinion.
