Vietnam's securities market may be upgraded to the emerging market status from its current frontier market by 2020.
The local securities market has grown rapidly and reached US$191 billion in total value by the end of March 2018, equivalent to 95% of the GDP (gross domestic product) in 2016 and up 24.7% against 2017.
It’s as large as the securities markets in the United Arab Emirates and the Philippines and even surpasses some emerging markets such as Qatar (US$131 billion), Pakistan (US$82 billion) and Egypt (US$58 billion).
Liquidity also increased sharply to an average of VND8.8 trillion (US$386 million) per session in the first quarter, a growth of 80% over the average of 2017.
According to SSI Research, five Vietnamese stocks have satisfied the Morgan Stanley Capital International Inc (MSCI) requirements in terms of market capitalisation, free-float rate and liquidity and can be added to the Emerging Market Indexes in case the local market is upgraded.
SSI estimates that nine other stocks will meet these requirements in future. These shares have a market value of over US$2 billion and good liquidity but are yet to reach the level of required free-float rate.
In its 2017 market classification review that was carried out in late June, MSCI did not include Vietnam in the review list for a potential reclassification to the emerging market status. Thus, Vietnam remained in the MSCI Frontier Markets Index.
Essentially, the country’s securities market has satisfied MSCI’s quantitative requirements in terms of the market size and liquidity.
However, qualitative conditions will be decisive factors for an upgrade, not only by MSCI but also by other classification firms, such as FTSE and S&P.
The Government, meanwhile, is doing well in managing macro-economic stability and reinforcing foreign investors’ confidence in the local market. However, the research suggests relaxing the limit of foreign ownership and accelerating the divesting of State capital in State-owned enterprises to further broaden the investment scale for foreign investors.
On the other hand, the foreign exchange market needs to be more flexible to facilitate the flow of foreign capital into the country.
According to SSI Research, Vietnam can be upgraded to the emerging market status in 2020 by MSCI, but it requires at least one year for MSCI to seek advice from the international investment community and another year for investment firms to prepare for the changes and portfolio restructuring.
MSCI will publish its annual market rating and prepare a list of markets that need to be consulted for the next period in June.
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