VietNamNet Bridge - Vietnam has not been upgraded to emerging stock market as expected because of the problems relating to the forex market and limited foreign ownership in Vietnamese companies.

Vietnam was even not included in the list of the markets for consideration to upgrade from ‘frontier’ to ‘emerging’.

MSCI has maintained its ranking of the stock market in all qualitative standards, which means that the international finance institution expects more substantial efforts from the agencies that regulate the stock market in Vietnam.

There are quite a few criteria that are assessed by the MSCI as ‘needing improvement’.  

Vietnam has not been upgraded to emerging stock market as expected because of the problems relating to the forex market and limited foreign ownership in Vietnamese companies.

For instance, the companies in some sensitive business fields still face restrictions in foreign ownership ratios. Foreign investors’ benefits are restricted due to strict regulations on the total foreign ownership ratios in general and the ratios of every investor in particular.

MSCI has seen one positive change in the Vietnamese stock market – transferability, but it still maintains the view that Vietnam needs improvement.

According to SSI, the limitation in foreign ownership ratio and the foreign investors’ right restrictions were MSCI’s concerns when assessing the market. 

Two years have been elapsed since the government of Vietnam released Decree 60 allowing foreign investors to hold up to a 100 percent stake in Vietnamese companies. 

However, only 19 companies have lifted the foreign ownership limit, a small figure  compared with 700 listed shares.

Regarding the liberalization of the forex market, which is the major obstacle for the market upgrading, SSI commented that the problems cannot be settled within a short time. 

However, they can be improved step by step with great efforts by state management agencies and market members. MSCI would recognize the considerable improvement that they can see and give advice on necessary changes.

MSCI has decided to put China A Large Cap stocks on the MSCI Emerging Markets Index. Analysts believe that the key to MSCI’s decision lies in the liberalization of the forex market. The Chinese yuan joined IMF’s Special Drawing Rights (SDR) in September 2016.

It is nearly impossible for dong to join SDR now. However, if the forex market becomes more open, MSCI will change its view about Vietnam.

The stock market has seen the VN Index increasing recently, partially because of the hope that the market would be upgraded to an emerging one.

However, the latest decision by MSCI does not disappoint investors. Both HSC and VDSC securities companies believe that though Vietnam stays in the Frontier Market Index, the proportion of Vietnam’s shares would increase after Pakistan is upgraded to emerging. 

According to VDSC, the proportion may increase from 3.57 percent to 12.38 percent. If so, Vietnam’s opportunities to attract foreign capital will be greater.

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