Vietnam is currently classified as a frontier market, and was added to the watch list in September 2018.

FTSE Russell maintains Vietnam on watch list for possible reclassification to emerging market. Photo: tinnhanhchungkhoan.vn

According to a FTSE Equity Country Classification Announcement on October 8, Vietnam has yet to meet the ‘settlement cycle’ criterion, which is currently rated as ‘restricted’ due to the market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution. Since, by default, the market does not experience failed trades.

Additionally, improvements to the process for the registration of new accounts are required, as market practice can result in the extension of the registration process. The introduction of an efficient mechanism to facilitate trading between non-domestic investors in securities that have reached, or are approaching, their foreign ownership limit is also seen as important.

The proposed ‘non-prefunding’ settlement model under consideration has been further refined by an industry group, working alongside the State Securities Commission of Vietnam (SSC). The Ministry of Finance issued a circular on September 18 that sets out amendments to various regulations. The circular removes the pre-funding requirement for international investors purchasing equities by updating various regulations that govern securities transactions, the clearing and settlement of the transactions, the activities of securities companies, and information disclosure.

The next relevant announcement is anticipated to be the release of more detailed operating rules by the Vietnam Securities Depository and Clearing Corporation.

FTSE Russell continued to encourage meetings between local Vietnamese entities and the international investment community to ensure these rules meet the needs of the relevant international and local participants.

"It remains imperative that the pace of change is maintained if Vietnam is to meet the 2025 targeted deadline set by the PM earlier this year. The revised market rules need to be confirmed and widely communicated relatively soon, including finalisation of the required roles and responsibilities within the settlement model, and a roadmap with key milestones, setting out the path towards implementation," FTSE Russell noted.

FTSE Russell noted the continued support of the Vietnamese government for the market reforms and remained appreciative of the constructive relationship with the SSC, other market authorities, and the World Bank Group, which is supporting the wider market reform programme.

SSI Securities projects an optimistic scenario where FTSE Russell could elevate the Vietnamese market to emerging status. Vietnam could immediately attract $1.7-2.5 billion in foreign investments following the upgrade.