Vietnam's stock market eyes upgrade, sets strategic dialogue in Hong Kong

Vu Thi Chan Phuong, chairwoman of the State Securities Commission

"The forthcoming dialogue in Hong Kong will serve as a platform for an in-depth evaluation of our market's potential for an upgrade," said Vu Thi Chan Phuong, chairwoman of the State Securities Commission (SSC), during the Macro-economy and Stock Market dialogue on July 25 in Hanoi.

The upgrade carries significant potential economic benefits. According to estimates by the International Monetary Fund, the classification of the stock market influences approximately 70 per cent of investment decisions. Moreover, the World Bank suggests that should Vietnam achieve 'emerging' status, if it can attract an annual capital inflow of about $7.2 billion.

"A market upgrade could be a game-changer, not only enhancing our stock valuations and accelerating state capital divestment and equitisation processes, but also encouraging a more diverse array of investors," Phuong said.

Currently, Vietnam's investor base is heavily dominated by individual investors, who constitute nearly 90 per cent of the sector.

However, the SSC chairwoman acknowledged the substantial challenges that lay ahead.

"One significant hurdle we face pertains to the margin requirements, which we are actively addressing with the support of the State Bank of Vietnam," she noted. "As it stands, the margin requirements stipulate full cash collateral before trading, a requirement not imposed by rating organisations."

"Implementing a central counterparty for the spot market will help us alleviate this issue, reducing margin requirements to as low as 10 per cent. This change would assuage concerns from foreign investors and foreign depository banks, which currently operate indirectly via domestic banks due to these requirements."

The SSC is also suggesting a review of foreign ownership limits. "We advocate that restrictions should only be imposed on crucial sectors such as national defence and trade protection," Phuong said.

Lastly, the chairwoman stressed the importance of market transparency and product quality, which requires greater supervision and post-inspection.

"We are always open to public issuances, as long as they meet stringent criteria," Phuong said. "A crucial aspect of our journey towards an upgraded market status is to ensure the quality and transparency of products entering the market."

Vietnam's planned stock market upgrade may pose several challenges, but the potential rewards in the form of increased capital inflows and a more diverse investment landscape are compelling motivators.

Previously, during a bilateral meeting in June, the Asia Securities Industry and Financial Markets Association (ASIFMA) has lauded Vietnam's stock market as it approaches the status of an emerging market. However, amid the promising growth, there remains a crucial bottleneck that foreign depository banks are eager to see resolved.

For instance, foreign depository banks highlighted a significant challenge they hope to overcome. The requirement for pre-trade margin and securities lock-up has emerged as a bottleneck, hindering the smooth functioning of the market.

To address this concern, ASIFMA members propose a mechanism for securities settlement guarantee activities or the provision of short-term credit limits for foreign investors engaged in securities transactions.

Alice Law, CEO of ASIFMA, emphasised the aim to foster transparent discussions between regulators and investment entities, propelling an ideas exchange and the introduction of reforms that could guide Vietnam's stock market towards achieving an emerging status.

"ASIFMA member depository banks believe that there should be a specific mechanism for securities settlement guarantee activities or the provision of short-term credit limits for foreign investors engaged in securities transactions," said Law.

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ASIFMA highlights Vietnam stock market's emerging status The Asia Securities Industry and Financial Markets Association (ASIFMA) has lauded Vietnam's stock market as it approaches the status of an emerging market. However, amid the promising growth, there remains a crucial bottleneck that foreign depository banks are eager to see resolved.