FTSE Russell keeps Vietnam at secondary emerging market level

A KB Securities Vietnam Company's office

Hanoi – Vietnam remains a secondary emerging market following the latest market re-classification by the British analytics and data solution provider FTSE Russell.

FTSE Russell had listed Vietnam in its watchlist for potential re-classification since September 2018. The latest result, made on late September 25, had been widely expected by local securities firms.

According to Bao Viet Securities Co (BVSC), in FTSE Russell’s March re-classification, Vietnam met seven of nine criteria to upgrade it to the emerging markets status.

The two standards Vietnam did not satisfy were Settlement – Rare incidence of failed trades and Deliver-versus-payment (DvP) Settlement Cycle, which were marked “not available” and “restricted”.

BVSC said that Vietnam did not meet those two items as investors were asked to make a sufficient deposit before trading, subject to Circular 203/2015/TT-BTC dated December 21, 2015.

FTSE Russell, in its assessment, said that the rule did not allow the settlement to follow the DvP model and failed trades were almost non-existent in the market.

According to KB Vietnam Securities Co (KBSV), Vietnam may get a chance to be promoted to emerging markets status by September 2021.

Until the upcoming review in March 2021, Vietnam will not have enough time to make changes to its existing issues addressed by FTSE Russell, KBSV said.

The State Securities Commission (SSC) may complete upgrading the trading system in early 2021, KBSV predicted, which would become a milestone for Vietnam to transform its settlement method from pre-funding – which requires the investor to have a sufficient amount of cash in the account to buy and sell securities – to DvP system, the brokerage said.

However, the transformation will not go smoothly as there are some differences between the SSC and the settlement service provider, and securities firms will need some time to complete updating their technology to match the stock exchanges’ trading systems, the company said.

KBSV said that a failure in next year’s market status re-classification and the slow process of equitisation among State-owned enterprises may make Vietnam miss the chance to draw a huge flow of foreign capital.

VNDirect Securities Corporation (VNDS) forecast that about 1.4-1.9 billion USD worth of foreign capital may flow into the local equity market if Vietnam is lifted to emerging markets status.