Illustrative image (Source: VNA) Hanoi (VNS/VNA) - It may take Vietnam two years to get upgraded toemerging market level from the current frontier market classification,VNDirect Securities Corporation said in its 2020 outlook.
The Vietnamese stock market missed the chance in June 2019 as MorganStanley Capital International (MSCI) kept Vietnam at frontier status.
MSCI also did not add Vietnam to the watchlist for apotential upgrade.
The firm made the decision as Vietnam fell short in terms of qualitativemeasures despite meeting all quantitative criteria.
Some qualitative indicators that fall short of expectation were limitedopenness and unequal treatment of foreign investors regarding foreign ownershiplimitations, lack of information disclosure in English, lack of an offshorecurrency market and lack of an independent securities clearing centre.
Approximately 1 billion USD worth of foreign capital is expectedto flow into Vietnam’s stock market if it is officially re-classified toemerging markets status from funds that invest in MSCI Emerging MarketsIndex and FTSE Emerging Markets Index, VNDirect Securities said.
But VNDirect Securities said there are several factors that could change thesituation.
Firstly, the amended Law on Securities, which was approved by Vietnam’s NationalAssembly on November 26, 2019, will come into effect on January 1, 2021.
Vietnam has also made changes in the Law on Enterprises and the Law onInvestment. The two laws will be brought to the upcoming National Assemblymeetings for discussion and approval in June.
“Changes in these laws will contribute to removing the current hurdles to there-classification of Vietnam’s stock market, including foreign ownershiplimitation and equal treatment for foreign investors,” VNDirect Securities said.
The best scenario is the Vietnamese stock market will be added into MSCI’swatchlist for the re-classification at its annual review in June 2021 and thedecision will be made in June 2022.
In the near future, despite not being added to the watchlist forre-classification, Vietnam may still benefit from a larger inflow of foreigncapital that targets frontier markets.
That is because MSCI announced in June 2019 that Kuwait will be re-classifiedas an emerging market in June 2020, which could raise Vietnam’s weight inMSCI Frontier Markets Index and MSCI Frontier Markets 100 Index to 25.8 percentand 30 percent, VNDirect Securities estimated.
As of December 10, 2019, Vietnam’s weights in the two indices were about 16 percentand 13 percent, MSCI data showed.
“If Kuwait gets an official upgrade to EM status, Vietnam's stock market couldenjoy investment inflow of about 200 million USD from funds that trade inMSCI Frontier Markets.”
Foreign capital inflows will continue to focus on Vietnam’s large-cap stockscurrently in MSCI Frontier Markets Index and MSCI Frontier Markets 100 Index,including dairy producer Vinamilk (VNM), property and industrial groupVingroup (VIC), property firms Vinhomes (VHM), Vincom Retail (VRE) and Novaland(NVL), consumer company Masan (MSN), steel producer Hoa Phat (HPG) andVietcombank (VCB)./.
VNA
