A trading session at the MB Securities Company. (Photo: VNA)Hanoi (VNA) – Upgrading the stockmarket into an emerging market is one the Vietnamese Government’s key goals,with a view of attracting more foreign investment.
The US-based Morgan Stanley CapitalInternational (MSCI) annually categorises markets across the world as developed,emerging or frontier markets, with Vietnam classified a frontier, the lowest onthe ranking scale.
The Vietnam Economic Times said there aretwo main driving forces behind the determination made by Vietnam and otherfrontier markets to turn themselves into emerging ones.
First, an emerging market (EM) boastslarger scale and higher quality compared to a frontier market (FM) and embodiesmore growth potentials than a developed market (DM). EMs tend to attract moresecure investment other than hot money often poured in FMs, while passiveinvestment funds, like exchange-traded funds, are likely to concentrateresources on veteran EMs or newly-recognised EMs.
Second, becoming an EM means going througha major boost to the market size, liquidity and accessibility. The process willexert pressure for changes to improve legal framework and informationtransparency.
According to the MSCI Market ClassificationFramework, in order to be categorised as an EM, a country must has at leastthree companies fulfilling the requirements of securing 1.26 billion USD in companysize (full market cap), 630 million USD in security size (float market cap),and an annualised traded value ratio of 15 percent.
As of May 2016, Vietnam had only onecompany meeting these specifications. The Sai Gon Securities Incorporation (SSI)said the figure reaches four at the present time.
The EM status also requires marketaccessibility criteria, which include openness to foreign ownership, ease ofcapital inflows/outflows, efficiency of the operational framework, andstability of the institutional framework. These qualitative criteria areaccessed by the MSCI once a year via its Global Market Accessibility Review. Ina review announced in June 2016, the MSCI remained its classification forVietnam, but noting some of the country’s improvements in foreign ownership interms of announcements in English and registering process applied for foreigninvestors.
Overall, quantitative criteria pose minorobstacles to Vietnam, as the country has gathered enough representatives, whichare likely to increase in the future.
The main barrier is qualitative criteria. Twoyears after ceiling ownership for foreign investors raised to 100 percent, the numberof foreign shareholders remains relatively low. Capital inflows/outflows,meanwhile, are facing challenges from tightly monitored foreign exchange marketin protection of the local currency.-VNA
VNA
