Vietnamese stocks accelerate on the journey to market upgrade
After more than a decade of mention, upgrading the market is a story that is receiving more attention than ever and has taken final steps.
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| After more than a decade of development, Vietnamese securities are gradually approaching strict international standards. Photo: D.T |
From determination to action for the goal of upgrading
It is expected that in March 2024, the State Securities Commission will officially publicize and solicit market members' opinions on the Draft Amendment to Decree 155/2020/ND-CP guiding the Securities Law and a draft circular amending four guiding circulars at the same time. The main goal of the changes in the above legal documents is to partially remove the "bottleneck" in meeting the criteria for upgrading the stock market.
To remove the "obstacle" of the pre-transaction margin requirement for foreign investors - one of the major barriers that makes the Vietnamese stock market less attractive than the regional market, according to Ms. Ta Thi Thanh Binh, Director of the Market Development Department (State Securities Commission), this agency is carefully reviewing solutions in the direction that securities companies that meet the conditions will be allowed to allow foreign investors to place purchase orders without having 100% of the money available.
Paving the way from the legal framework, two documents including Decree 155/2020/ND-CP guiding the Securities Law with contents related to the issue of service provision conditions of securities companies and Circular 120/2020/TT-BTC on listed stock transactions will need to be amended.
The bottleneck that needs to be solved to upgrade the market lies not only in the transaction issue, but also in the accessibility of foreign investors. Amending Decree 155/2020/ND-CP, the management agency plans to set a deadline for public companies and listed enterprises to review their business lines and determine the maximum foreign ownership ratio. Currently, regulations on foreign investors' ownership limits are scattered in many documents and the habit of registering business lines "more than not enough" makes businesses confused in determining the foreign "room". Foreign investors also do not have a place to access information in a formal, comprehensive manner.
In the future, it is expected that there will be a roadmap for businesses to gradually disclose information in both Vietnamese and English. Accordingly, large public companies will be required to periodically disclose information in English from January 1, 2025, and to disclose both periodic and extraordinary information in English from January 1, 2026, then expand the implementation to the entire market.
Currently, the two drafts have been submitted to the Minister of Finance and are in the process of being implemented. The goal set by the State Securities Commission is to “try to issue the revised Decree before August 2024”, which means, in time for FTSE Russell - one of the three major market rating organizations to publish its semi-annual Market Classification Report in September 2024.
Year of acceleration
In fact, upgrading the market has been a topic of discussion in the stock market for more than a decade, but this issue is hotter than ever. The first conference on stock market development chaired by the Prime Minister was held at the end of February 2024. Two days later, the State Securities Commission held the Forum for an innovative and effective season of shareholders' meetings, with the participation of representatives from more than a thousand public companies and listed enterprises.
The goal of upgrading the market requires the participation of many parties. Market participants, specifically listed enterprises, will need to meet higher standards to ensure fairness in access to information if the amendments to Decree 155/2020/ND-CP are passed. However, this is necessary to increase the attractiveness of the Vietnamese stock market in the eyes of foreign investors.
In particular, foreign capital flows are also forecast to be more positive. After a strong net withdrawal in 2023 with a net selling value of up to billions of USD due to the trend of returning to developed countries and withdrawing from frontier and emerging countries, analysts predict that this trend will reverse in 2024. As many major central banks are forecast to begin the process of cutting interest rates this year, the low interest rate environment will stimulate foreign investors to seek profits from frontier and emerging markets, including Vietnam.
Although it is quite cautious to assume that foreign investors' capital flows will not recover immediately, the Analysis Center (SSI Securities Company) expects that, at least, foreign selling pressure in 2024 will not be as strong as last year.
Along with international macro factors, the opportunity for the Vietnamese stock market to be upgraded by FTSE Russell in the 2024-2025 period is expected to be a boost to attract foreign indirect investment. Assessing 2022 as a year of ups and downs for the market, 2023 has overcome many difficulties, improved the situation, focused on doing what must be done and made more progress, Prime Minister Pham Minh Chinh emphasized that 2024 must accelerate and 2025 must make a breakthrough.
With the determination of the head of the Government to upgrade the stock market, relevant ministries and branches are taking urgent action. With the reporting deadline of June 30, 2024, relevant ministries, branches and branches will need to accelerate in the coming months.
FTSE has put Vietnam on its watch list since September 2018, considering upgrading it to a secondary emerging market in 2024 thanks to basically meeting 7/9 criteria.
However, MSCI applies more stringent upgrading criteria. Currently, Vietnamese securities only meet 9/18 criteria. Of which, the disclosure of information on legal regulations and enterprises in English so that foreign investors can access and grasp promptly and fairly like domestic investors is a missing criterion, but can be improved soon.
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