Status upgrade crucial to stock market growth

The upgrade of Vietnam’s stock market from frontier to emerging status is a driving force for the future.

A top priority set for Vietnam’s stock market is to get upgraded to emerging status before 2025, according to market credit rating agencies Morgan Stanley Capital International (MSCI) and the FTSE (Financial Times Stock Exchange).

There are still many criteria that the Vietnamese market must reach to meet the upgrade requirements, including strengthening the safeguarding of the interests of retail investors. The recent actions of the market regulator to handle violations on the stock market, which are highly appreciated by international investors, may add more points in the coming reviews of international market ranking organisations.

At the end of last year, VNDiret Securities Company said that if Vietnam completes the new securities trading system in early 2022, it could be included in the MSCI’s watchlist for a market status upgrade from “frontier market” to emerging status during the annual market review in May 2023.

Vietnam may then be notified of its upgrade to emerging market status during the MSCI annual market review in May 2024.

“Recently the market regulator has done a series of settlement over violations, hopefully, this will make the upgrade process easier," said Pham Luu Hung, chief economist of SSI Securities Co.

The investor community is expecting drastic changes, particularly increasing publicity and transparency to protect investors.

At the Vietnam Business Meeting earlier this year, Dominic Scriven, head of the Capital Markets Working Group of VBF, said the development of the capital market depended very much on the confidence of investors, which can only be built through improving the transparency and fairness of the market, applying adequate sanctions to the violations and enforcement of protection mechanisms, especially in the Vietnamese market which currently has large participation of individual investors, accounting for 93% of transactions.

The recent drastic settlements over violations on the market were thanks to a great effort and determination from the Government, the Ministry of Finance and other authorities. Although it is inevitable that the market will decline in the short term, strict sanctions due to negative effects will have a positive impact on the development of the stock market in the medium and long term.

The goal of the regulator is to build and develop a safe, transparent and sustainable securities market, to ensure the interests of genuine businesses and investors, to increase the attractiveness of the stock market, draw more investment capital flows both at home and abroad, helping to support the process of upgrading from frontier to emerging status.

According to Minister of Finance Ho Duc Phoc, the Ministry of Finance will direct agencies such as the Finance and Banking Department, the Department of Accounting and Auditing, and the State Securities Commission to ensure both support and supervision, avoiding manipulation activities on the stock market. Acts of manipulation must be strictly punished, but businesses that comply with regulations must be fully supported.

At a recent conference on the capital market, Prime Minister Pham Minh Chinh also said as the Government has set a goal to develop a healthy capital market, the most important thing was to protect genuine investors.

The Prime Minister has requested the Ministry of Finance to urgently review and amend current inadequate regulations, especially regarding regulations on transparency of business information, rights and responsibilities of management entities, market participants such as State management agencies, enterprises, securities companies, investors, strengthen sanctions to strictly punish violations on the stock market to protect investors, thereby restoring trust, especially dealing with manipulation and price manipulation, ensuring healthy, transparent and sustainable development.

In the future, Vietnam’s stock market will develop, with better quality, affirming its role as the main medium and long-term capital mobilisation channel of the economy and enterprises, at the same time, it is an attractive, safe and effective investment channel for investors, PM said.

As of September last year, the Vietnamese stock market, along with Iceland, Mongolia and Russia, were on the FTSE's Upgrade Watchlist.

In the Market Outlook 2022 Report, VNDirect Securities Company has put forward an optimistic scenario that the FTSE may announce the inclusion of the Vietnamese stock market into the emerging market group during the annual market assessment in September of this year.