The London-based financial and business information firm FTSE Russell has recently announced that it added Viet Nam, currently classified as a Frontier market, to the watch list for possible reclassification as Secondary Emerging.
This information has had positive impacts on the stock market in Vietnam. Ending the trading session on September 27, VNIndex increased by 0.57 per cent to 1,015 points.
Recently, The Leader, a local media channel had an interview with Le Hai Tra, Chairman of Board of Directors, Ho Chi Minh Stock Exchange (HOSE) about this issue.
What positive impacts will the thing that FTSE added Viet Nam to the watch list for possible reclassification as Secondary Emerging have on the stock market?
Le Hai Tra: It is the prospect that Vietnam’s stock market will be officially upgraded 12 months later. This means that investment funds, which are operating based on the FTSE Emerging index, will invest more in listed stocks eligible to be listed in this index basket. Thence, a capital flow is likely to appear, forming a new wave of investment to Vietnam.
In addition to the recent sharp increase in market size, what changes in Vietnam’s stock market have caught FTSE’s attention, adding Vietnam to the watch list?
Le Hai Tra: In recent years, Vietnam’s stock market has met quantitative criteria on size and liquidity of listed companies. Recently, the groups of macroeconomic indicators, the national credit rating, the legal/management system, and the stock market performance have been improved.
MSCI has also been monitoring the Vietnamese stock market for many years but has not removed Vietnam from the Frontier Markets list. What are the main reasons, and can Vietnam change to meet MSCI requirements?
Le Hai Tra: MSCI is not the sole firm which calculates stock indexes. Apart from MSCI, there are international firms that calculate stock indexes for global investment purposes such as FTSE Russell or S&P.
Although these firms have something in common, they have their own views, principles, and criteria on market ranking. For example, MSCI only ranked South Korea in Emerging Market.
The reasons why Vietnam has not been upgraded were announced and fully explained by MSCI. Vietnam has made significant endeavours and improvements but needs to be recognized and supported by the international investment community which will influence the views of firms calculating indexes such as FTSE or MSCI. That is what Vietnam needs to do better.
If Vietnam was ungraded, there would be strong inbound FDI into the stock market of Vietnam, then how would the size of Vietnam’s stock market be? Will foreign ownership limits in some companies become a barrier to this new inbound FDI?
Le Hai Tra: According to the FTSE criteria, 35 companies listed on the HOSE and 4 listed on the HNX are qualified for the FTSE Emerging Index, accounting for 0.52 per cent.
This reflects the fact that Vietnam’s listed companies have limited sizes and liquidity, based on the total market capitalization adjusted by the free-float rate.
Accordingly, it is estimated that investment funds will invest around $500 million in Vietnam’s stock market.
We should note that, according to the FTSE criteria, some stocks with large capitalization of Vietnam are not listed in the FTSE index basket due to unavailable room for foreign ownership or low free-float rates. However, capital flows into the Vietnamese market after upgrading will not only be limited to investment funds operating on the basis of the FTSE Emerging Index.
Thank you very much!