2025 pivotal for stock market upgrade effort

The Ministry of Finance (MoF) is expected to soon publish the entire content of the draft circular amending and supplementing four circulars on transactions, registration, depository, and clearing, as well as operations of securities companies and information disclosure. This move, along with feedback and explanations, aims to meet the criteria for upgrading Vietnam’s stock market.

2025 pivotal for stock market upgrade effort, illustration photo/ Source: freepik.com

Amendment of these four circulars is crucial for the Vietnamese stock market to fulfill the remaining two criteria of the nine FTSE Russell upgrade assessment criteria. These include prefunding for foreign investors and mechanisms for handling failed trades.

“These changes will enhance the likelihood of Vietnam’s stock market receiving a positive evaluation in FTSE’s upcoming market assessment reports, specifically in September this year and March 2025. We can expect Vietnam’s stock market to be officially upgraded to FTSE standards in 2025, after being on FTSE’s watchlist since September 2018 and currently holding the highest weight in FTSE’s frontier markets group,” said Do Bao Ngoc, deputy CEO of CSI Vietnam Construction Securities.

According to the draft, the depository bank where foreign institutional investors open their securities depository accounts is responsible for covering any shortfall in case of incorrect cash balance confirmation with the securities company, leading to insufficient funds for securities transactions.

“In cases necessary to stabilise the market, the State Securities Commission (SSC) has the authority to temporarily suspend non-margin 100 per cent cash trading services for foreign institutional investors,” said the draft.

Additionally, the draft circular specifies that securities companies can accept purchase orders from foreign institutional investors even when their accounts do not have the full order value.

Upgrading the stock market will send a clear signal that Vietnam has been making significant strides in the international economic integration process.

“It will affirm the position and enhance the image not only of Vietnam’s stock market but also of the entire economy in the international community. This will lead to a more positive perception of the investment environment in Vietnam by international investors. Furthermore, it will indirectly support the goal of gradually improving the country’s credit rating according to the national credit rating improvement plan until 2030,” said Vu Chi Dung, director general of the International Cooperation Department at the SSC.

In early July, the SSC organised a workshop themed “Creating momentum for stock market upgrading,” discussing solutions to address bottlenecks in upgrading the stock market and outlining a sustainable roadmap for Vietnam’s stock market in the long run. Representatives from stock exchanges, securities companies, listed companies, and finance and securities experts participated.

Businesses appreciate the substantial efforts from regulatory agencies in developing the legal framework, especially regarding two important criteria related to prefunding for foreign investors and information transparency among investors. Meeting these conditions makes it entirely feasible for Vietnam to achieve the goal of upgrading the stock market by 2025.

“The most challenging criteria related to trading volume have already been met by Vietnam, but there are still obstacles related to the legal framework, mechanisms, and information transparency. We expect that investors will only need a small amount of money instead of 100 per cent to be able to trade in the market,” said Tran Minh Hoang, director of Research and Analysis at Vietcombank Securities Company (VCBS) during the workshop.

Nguyen Duc Chi, Deputy Minister of Finance, said at the event that transparency in information is essential on the journey to a significant and long-term upgrade of Vietnam’s stock market.

“Accuracy in information on the stock market should be considered a given responsibility of enterprises. It should be recognised that this is not only an obligation but also a benefit for enterprises. Information disclosure in two languages, which some enterprises have done but is still insufficient. We plan to amend regulations related to this issue and have a roadmap,” he said.

“In the event of an upgrade, not only will the capital from passive funds flow into the market, but active investment funds and major global investors will also participate in Vietnam’s capital market. These investors will help expand the investor base, providing new capital sources to better achieve the goal of equitisation, especially for large state-owned enterprises.”

An expanding and developing stock market is an attractive destination in the process of capital raising for equity markets of innovative startups, small- and medium-sized enterprises, and large unlisted companies, supporting initial public offering (IPO) activities and listing companies for divestment on the stock market.

Raising capital through IPO and listings on the stock market is the most effective form with the highest return rates. Therefore, the listed stock market contributes to enhancing the attractiveness of the equity market and the innovation startup ecosystem.

However, while upgrading the stock market brings many benefits, it also poses challenges, the biggest of which is ensuring the stock market continues to develop stably and sustainably, avoiding downgrades.

“If we fail to maintain our position after the upgrade to emerging market, capital flows may drain away. This challenge comes from stock markets that no longer meet the criteria to maintain their current status or fail to meet the changing criteria from rating agencies,” said Bui Hoang Hai, deputy chairman of the SSC.

Vietnam securities market should soon adopt NVDR following the model of Thailand With a strong determination to be upgraded to emerging market status in 2025, Vietnam's securities market needs to improve. Nguyen The Minh, head of Research & Development for Retail Clients at Yuanta Securities Vietnam, talked to VIR’s Hazy Tran about addressing foreign ownership limits and aiming for a successful upgrade.