VCN- According to VNDirect Securities Corporation, Vietnam is unlikely to be included in the "shortlist of consideration for upgrading to emerging market status" in the next review. However, there are still good signs that large capital flow may be poured into Vietnam’s stock market.
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Vietnamese market lacks many criteria
According to VNDirect SecuritiesCorporation, compared with the market classification criteria of MSCI (a reputable company in providing financial market analysis tools), Vietnam's stock market has met most of the quantitative criteria but has not met some qualitative criteria to be upgraded to emerging stock market status.
They include information disclosure in English, market openness and equal rights for foreign investors (including the issue of limits on foreign ownership).
Besides, according to VNDirect, Vietnam lacks an offshore currency market, making it difficult to convert from Vietnam dong to foreign currencies, while the onshore currency market is still limited. Currently, Vietnam does not have an independent payment centre.
In addition, other criteria on trading, securities transfer and derivative products in Vietnam market are still weak.
"Vietnam’s stock market needs at least another year to be included in the ‘shortlist’ and 1-2 years later to officially be upgraded to the emerging stock market status”, VNDirect said.
Waiting for large capital flows
However, according to VNDirect, Vietnam's stock market will still benefit even if it is not included in the "shortlist" thanks to the proportion of Vietnam in MSCI Frontier Markets Index and MSCI Frontier Markets 100 Index (two MSCI's portfolio) that will be significantly raised if Argentina is upgraded to emerging stock market status in the next review.
“As announced by MSCI in June of the last year, it is likely that in the next review, Argentina will be officially upgraded by MSCI, while Kuwait will be added to the ’shortlist review’ to be upgraded to emerging market status in June 2019. Following that, Vietnam's weight in the MSCI Frontier Markets Index and MSCI Frontier Markets 100 Index can be increased by 3% from about 16-17% currently”, VNDirect said.
According to estimates of VNDirect, there will be about $US66 million (about 1,500 billion VND) allocated by the above funds to Vietnam's stock market if Argentina is upgraded to emerging market status in the next review.
As of the end of March, funds mimicking MSCI Frontier Markets Index and MSCI Frontier Markets 100 Index are allocating about $US493 million to Vietnam’s stock market, $US671 million to the Kuwait market and $US501 million to Argentina’s market.
Thus, if Argentina is transferred to the emerging market group, almost all of the $US501 million will be allocated by these funds to the remaining marginal markets and Vietnam will be one of the eligible markets. The biggest gain is due to the large proportion of MSCI Frontier Markets Index and the MSCI Frontier Markets 100 Index.
In this context, the above funds are expected to buy large-cap stocks in the portfolio of MSCI Frontier Markets Index and MSCI Frontier Markets 100 Index such as VNM, VIC, VHM, VCB, SAB, MSN, HPG and GAS.
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According to VNDirect, the foreign capital which flows into Vietnam stock market will be an important support for the market in the absence of strong enough supportive information in the second half of the second quarter of 2019.
In addition, the above figure of $US66 million only accounts for funds simulated by the MSCI Frontier Markets Index and the MSCI Frontier Markets 100 Index without considering active funds such as MSCI Frontier Emerging Index or S&P/ BNP Mellon New Frontier Index and therefore the amount of money allocated to Vietnam's stock market from investment funds to the marginal market may be even greater.
By ThuyLinh/ Kieu Oanh