Bao Viet Securities Company (BVS) expects Vietnam's stock market might attract up to US$1.4 billion from index tracking funds, if Vietnam is officially upgraded to a secondary emerging market by FTSE.
A man watching stocks in front of a screen. — Photo doanhnghiepvadautu.net.vn
In an assessment and classification result released at the end of March, FTSE acknowledged efforts of the State Securities Commission of Vietnam in improving the legal corridor, and as the revised version of the Law on Securities went into effect in January, it is expected to pave the way for improving the market's quality.
However, in practice, Vietnam's stock market continues to fail to meet the criteria for clearing operations under the Delivery vs Payment (DvP) model due to the requirement of depositing enough money in Clause 2, Article 7 of Circular 203/2015/TT-BTC, according to FTSE.
Therefore it continued not to meet the two criteria, including "Settlement Cycle (DvP)" - rated at Restricted, and the criterion "Settlement - rare incidence of failed trades" - was not rated.
As the market met seven out of nine conditions for being upgraded to the secondary emerging market offered by FTSE, the Vietnamese stock market continues to be on the watch list for upgrading to secondary emerging market of FTSE for the evaluation in September.
Despite that, BVS still maintains a positive stance on the prospect that Vietnam will be upgraded to a secondary emerging market by FTSE in its 2022 upgrade assessment.
In case of officially being upgraded to a secondary emerging market, BVS estimated that Vietnam's stock market will attract up to US$1.4 billion from funds tracking or benchmarking indices like the FTSE Global All-Cap, FTSE All-World and FTSE Emerging Markets.
Based on historical data of actual movements of global markets, at least three months, from September to December, before a stock market is officially upgraded to emerging market by FTSE, that market usually receives strong cash flows from foreign investors and enters an upwards trend, BVS said.
With the expectation that the Vietnamese stock market can be upgraded in two assessments of FTSE in 2022, BVSC expects that foreign cash flows may flood into the country's stock market from the second half of 2021.
Under FTSE's set of criteria, large-cap stocks are the most likely to benefit from the trend.
BVSC believes that with a positive macroeconomic outlook, being upgraded to secondary emerging market is a positive signal for the improvement of the market quality and will help the country's stock market attract investment flows.
Despite the recent resurgence of the COVID-19 pandemic, the majority of foreign businesses remain optimistic for 2021 with some expansion plans.