Stock market rating agencies, typically MSCI and FTSE Russel, still assigned Vietnam as a frontier market, on a waitlist for being upgraded to an emerging market. According to experts, the upgrade of Vietnam's stock market is not only the task and an effort of the regulators, but a main driving force for public companies.

The upgrading not only creates an inclusive and sustainable change in perspectives of economic opening and foreign exchange market, but also the quality of public companies, investor professionalism and market transparency.

Vietnam is still a frontier market

Despite being affected by the Covid-19 pandemic, the stock market has staged a robust uptrend since mid-2020. The stock market is still an important medium and long-term fundraising channel for the economy. Entering the new decade with many expectations, both businesses and investors are seeing great opportunities for market progress.

However, according to Ms. Ta Thanh Binh, Director of Market Development Department, the State Securities Commission of Vietnam (SSC), currently among market rating agencies, typically MSCI and FTSE Russel, still listed Vietnam as a frontier market. FTSE Russell continued to keep Vietnam on the waiting list for upgrading from a frontier market to an emerging market.

According to FTSE Russell rating criteria (updated in September 2020), Vietnam’s stock market met seven out of nine upgrading criteria. Given MSCI criteria, Vietnam still has seven out of 17 criteria that need improvement. Also, in its June 2020 report, the criteria that Vietnam needed to improve included foreign ownership cap in conditional fields; the stock market significantly affected by foreign ownership room; equal foreign investment rights with respect to English information and ownership room; foreign exchange market liberalization; account opening registration requires VSD approval; market regulations and information streams in English; and non-overdraft and non-advance cash clearing payment.

Dr. Can Van Luc said the big challenge to market upgrading and foreign investment attraction into Vietnam’s stock market in the coming time is enhancing market transparency, professionalism, corporate governance of companies and market regulator capabilities. In particular, it is necessary to improve management capacity to monitor system risks, improve technology and data systems, and overcome order congestion on HOSE as occurred in the past time.

Motivations from public companies 

As regards solutions to upgrade the stock market, Ms. Ta Thanh Binh affirmed that upgrading the stock market is a task and an effort of the securities sector or regulators while being a driving force for public enterprises. Only when companies are transparent and comply with information disclosure disciplines; adopting International Financial Reporting Standards (IFRS) and pursuing sustainable development will be the nucleus to develop internal forces of the stock market - the root of the upgrading.

In addition, there are many other factors that need to be improved to upgrade the market, such as the degree of freedom in the foreign exchange market, diminished governmental administration interference in business operations, improve market openness to foreign investors; and create a favorable business investment environment for businesses. These efforts need to engage the entire political system and require consistent coordination between ministries and branches.

Regarding opportunities to upgrade the stock market and attract foreign investors, Binh said that, from January 1, 2021, the new legal system on securities, investment and business took effect to create a more transparent and complete investment environment. In addition, the new trading system and the central counterparty clearing house (CCP) system, operated on the South Korean technology platform and expected to be deployed in 2021, are an opportunity to resolve remaining problems with the current clearing payment of credit rating agencies.

Regarding attracting foreign investment capital, according to the Investment Law and decrees guiding the enactment of the Securities Law, the space for foreign investors will be more open.

However, while the stock market is integrating deeply with the international stock market, the strong development of financial technology (Fintech) has created many opportunities to develop the stock market more effectively and to serve more customers at lower costs, but it also poses more risks, including system risks, business model risks and cybersecurity risks. This places a requirement for regulators, market makers and enterprises to have broader scenarios, solutions, visions.

Sharing this point of view, Dr. Can Van Luc proposed soon issuing documents guiding the Law on Securities 2019; adopting market restructuring solutions according to Decision 242/QD-TTg on the project “Restructuring the stock market and the insurance market to 2020 and further to 2025". He said, the State Securities Commission needs to have strong solutions to promote listed companies to diversify supply sources and industries on the market, while reducing pressures on bank loans.