Vincom Center Landmark 81 in HCM City. (Photo: vneconomy.vn) Hanoi (VNS/VNA) - One year after failing to enterthe Morgan Stanley Capital International (MSCI)’s watchlist for a market statusupgrade, it is still uncertain if Vietnam will make it this year despiteefforts made to improve market conditions.
In June 2018, the MSCI rejected Vietnam’s inclusion on itswatchlist for a market status upgrade from “frontier market” to “emerging”.Instead, the MSCI raised the status of Argentina from a frontier market to anemerging one and put Kuwait in the watchlist for the next upgrade.
Argentina and Kuwait were on the MSCI Frontier Markets Indexbefore the review last year.
The Vietnamese Government considers the MSCI’s watchlist asa top-priority target this year as it could lure a huge amount of foreigncapital to the Vietnamese economy.
“We really hope MSCI will include Vietnam in its watchlistthis year. We have been making the best efforts to improve the legal framework,introduce new securities products and make the market more professional,” NguyenThi Bich Nga, Deputy Director of the State Securities Commission’sInternational Co-operation Department, told local media.
According to experts, Vietnam has met more standards of anemerging market than similar markets such as Pakistan and the Philippines.
Vietnam not only met the MSCI requirements of an emergingmarket but also had the best qualitative indicators among frontier markets, saidKevin Snowball, executive of PXP Vietnam Asset Management.
There was a good chance that the MSCI could put Vietnam in itswatchlist in the June review, said Stephen McKeever, head of the institutionalinvestor department at HCM City Securities Corp (HSC).
There were some reasons for that possibility, Stephen said.Prime Minister Nguyen Xuan Phuc supported the restructuring plan for the equitymarket until 2025 while the amendment of the securities law would make themarket fair between domestic and foreign investors.
But Vietnam should be careful as Argentina and Pakistan’smarkets underperformed after they were raised to emerging markets. Analystsbelieved Vietnam would not follow suit because its macro-economic conditionswere considered positive.
It is estimated Vietnam may receive 10 billion USD worth offoreign capital from frontier market-focused funds and much more from emergingmarket-focused funds.
According to analysts, the MSCI may want Vietnam to takefirm steps forward and mature enough before absorbing a huge amount of foreigncapital. Foreign investors hold nearly 30 billion USD worth of assets in Vietnam’s173-billion USD stock market.
Bill Stoops, chief investment officer of Dragon Capital,told local media that Vietnam might not get into the MSCI’s watchlist this yearand the decision could be made in 2020 if the MSCI saw progress in Vietnam’strading system.
No one wants to see Vietnam collapse as it did in 2006-2007when foreign investors sold-off their assets during the financial crisis,according to Bill.
The Vietnamese Government learned their lessons from the2006-2007 incident, Bill said, adding the election in 2021 might delay theadmission of Vietnam onto the MSCI’s watchlist.
Investors should stay calm because there was little chancefor Vietnam to get into the MSCI’s watchlist this year, Tran Anh Dung, directorof VNDirect Securities Corporation’s Market Strategy Department, told VietnamNews.
“Even if the MSCI does so, it will take Vietnam a few moreyears to move to the emerging markets index because there are many things to beconsidered,” he said.
One of the problems that could affect MSCI‘s decision is theforeign ownership limit in domestic firms. The foreign ownership cap inVietnamese firms was removed in accordance with Decree 58 issued by theGovernment in late June 2015.
That means foreign investors can purchase up to 100 percentof a company’s total shares if that firm is not involved in businessesconcerning the nation’s socio-economic safety and security such as banking,property and transportation.
Foreign shareholders can only own maximum 30 percent of abank’s shares. The rate for companies in the other two sectors is 49 percenteach.
Some local firms have been working to overhaul theirbusiness profiles to avoid foreign capital-limited sectors while local bankshave tried to convince the market regulators to allow foreign investors topurchase more than 30 percent of their capital.
New products have been discussed and issued to resolve theproblems for foreign investors. Covered warrants will be launched in late Junewhile non-voting depository right (NVDR) – another form of non-voting share –is expected to be approved by the National Assembly during its ongoing seventhmeeting.-VNS/VNA
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