|Pham Luu Hung, deputy director of the Center for Analysis and Investment Consulting at SSI Securities Corporation |
Currently, the Stock Exchange of Thailand is targeting to become the most appealing bourse in the Southeast Asian region, attracting around 30-50 initial public offerings annually. The Thai bourse aims to raise roughly $7.8 billion per year.
Meanwhile, despite the positive economic growth and relatively similar characteristics, Vietnam has still missed out on a Morgan Stanley Capital International (MSCI) emerging market status upgrade. Our status is still classified as a frontier market, despite the local government’s efforts and ambition to raise the bar for years.
The new Law on Securities was made effective in January, with high expectations on the central counterparty clearing system (CCP), intraday trading, short sales, and non-voting depository receipts (NVDRs). Notwithstanding, by now, none of them has any concrete timeline for actual implementation. So, we can say as frankly as MSCI that “in the case of frontier markets, there have been no developments in the past year resulting in any rating changes”.
For Vietnam, there might be at least three things that need to be done immediately, so that we could expect to be added to the watchlist to be upgraded to emerging market status by June 2022 or into 2023.
Firstly, the foreign ownership limit remains the most significant challenge restraining the market status upgrading process.
Scrapping the entire limit, or even extending the foreign cap for sensitive sectors like banking, telecommunications, and property, does not look feasible at the moment. We recommend, however, at least there should be some work-around. The local regulators should be more transparent in the list of sectors with conditional market access for foreign investors. They should also start working on building and applying the NVDRs, even at a smaller scale like a pilot project.
NVDRs have proved their importance as an effective mechanism to help the Thai stock exchange attract international funds. We believe NVDRs and non-voting shares also help Vietnamese-listed companies raise capital from foreign financiers, without having to give up their voting rights or dilute the number of outstanding shares. Hence, Vietnamese companies that operate in conditional sectors such as banking would be able to tie the knot with other potential foreign suitors.
Secondly, one of the issues on every foreign investor’s mind regarding Vietnam, and also an issue raised by MSCI, is the availability of company-related information like financial statements or information disclosure, regulations, and stock market detail flow in English. In general, Vietnam’s State Securities Commission (SSC) and listed companies show a lot of effort to provide related documents in English.
International news portals in English such as Bloomberg and Reuters also actively provide comprehensive updates on news items that might have an impact on the stock market overall, but there is still room for improvement. However, the idea of a blanket requirement to have all listed companies provide information disclosure in English is a tough task to implement here. This is true not just in terms of regulation, but also in practice, as small companies largely consider it to be quite a burden for them. So, recently a quick fix for the issue has been discussed by market participants.
First and foremost, the compulsory requirement for information disclosure in English (for financial statements and information disclosure) should be applied to larger listed companies. In our viewpoint, those that are in the VN30 list - the 30 largest listed companies in terms of market value - should set the precedent for other companies to follow suit.
Specifically, companies with a large market cap (for example, larger than $500 million) are also encouraged to adopt their financial and information disclosure in English. Companies with a high foreign ownership ratio (for example, more than 20 or 25 per cent) might be also required to publish information in English as well.
Secondly, the proposed change might not need a change in regulation at the SSC or a higher level, and can simply be done as a rule change at the stock exchange level in the form of an additional listing requirement for the Ho Chi Minh Stock Exchange, or the inclusion rule for VN30.
Last but not least, we would highly appreciate the quicker implementation of CCP so that it could partly resolve the pre-funding issue of the Vietnamese stock market. Currently, the local landscape is still a cash-based market, and not truly delivery versus payment.
We firmly believe that with a quick resolution, the Vietnamese stock market would be definitely upgraded to an emerging market status. As the legal framework is already there, it is just a matter of time.