KB Securities Vietnam (KBSV) has released a report saying that Vietnam is highly likely to be upgraded into a secondary emerging market by FTSE in its review, slated for September 2020.

According to KBSV, after the upgrading, Vietnam would have opportunities to access funds with large assets to be allocated in accordance with FTSE emerging market indexes, including Vanguard FTSE Emerging Market ETF, the largest one of this kind in the world.

Though the proportion of Vietnam’s stocks in EM indices is forecast to be at a low level, this will still generate a big cash flow into the Vietnamese stock market.

The disbursement by foreign investors is expected to increase significantly when the upgrading is announced, as it happened with Qatar stock market in 2015.

Some active funds are pouring money into the Vietnam’s stock market in anticipation of the market upgrading and are planning to withdraw the money to make a profit when the upgrading is announced.

However, KBSV reminded investors of the difference between the time when funds in frontier markets withdraw from Vietnam and when funds in emerging markets begin disbursement.

The active cash flow may be unpredictable before and after the upgrading. Some active funds are pouring money into Vietnam before the upgrading and then withdrawing from Vietnam after the upgrading.

The Romanian market, for example, saw a sharp increase of 38 percent earlier this year, in anticipation of the news about the upgrading into secondary emerging market in September 2019.

However, the stock indexes may be adjusted after the upgrading takes effect. In the case of UAE and Qatar, the indexes decreased by 5 percent and 20 percent, respectively, after one year of upgrading.

The market liquidity will improve significantly after the upgrading. By that time, Vietnam will be able to better absorb large-scale investment deals.

The upgrading also helps increase the similarity in the rules and standards between Vietnam and the international market. In addition, it is also seen as a motivation for regulatory agencies to continue promoting market reform and upgrading.

However, KBSV noted that investors will need to pay more attention to outside factors because when upgraded, the impact of these factors on emerging markets will be clearer than the frontier markets.

Vietnam is still listed among frontier markets and it was just added into the watchlist for upgrading into secondary emerging market in September 2018.

After one year of review, Vietnam can satisfy 7of 9 FTSE’s requirements.

Regarding the payment mode, this still observes the ‘pre-funding’ principle, i.e. investors can make transactions only when they have money in accounts. According to FTSE, Vietnam needs to follow international practice – DvP (delivery vs payment).

Kim Chi 

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