Vietnam is being called a rising star among Southeast Asian economies with the highest economic growth rates in the region. The World Bank and HSBC predicts that Vietnam will be the second fastest growing economy in the region in 2024 and among the fastest growing economies globally

However, Vietnam’s stock market is small with its scale just larger than Laos and Myanmar. While the Singaporean market is listed among the developed market, and the Philippines, Indonesia and Malaysia as emerging markets, Vietnam remains a frontier market with limitations.

In 2023, Vietnam’s capitalization value increased by $30 billion, coming closer to the $240 billion threshold, or 56 percent of GDP.

While Vietnam’s economy has been growing in an impressive way, the expansion of the Vietnamese stock market has slowed down. 

No large company entered the bourse last year. There is still a big capitalization gap between Vietnam and other regional countries. Indonesia, for example, has capitalization of $670 billion, while Singapore has $70 billion. 

The upgrading of Vietnam’s stock market has been long awaited. Nguyen Duc Nhan from KB Securities, said the upgrading, if this occurs, will bring big benefits. Vietnam will be able to more easily attract capital, direct and indirect, from foreign investors and international financial institutions. By that time, the liquidity will be high and the stock market will act as a capital channel for enterprises, together with bond and credit channels.

In late 2023, Deputy Prime Minister Le Minh Khanh signed a decision on approving the Vietnamese stock market development strategy, which says that Vietnam strives for the market upgrading into an emerging market by 2025. Vietnam also hopes that it can reach the development level of the four leading ASEAN countries by 2025.

With the current conditions, analysts believe that the upgrading is no longer far away.

In theory, Vietnam may obtain the upgrading in the review period in September 2024, or March 2025. The market liquidity may reach $2-3 billion per trading session and the VN-Index may make a jump and a 1,800-1,900 point peak.

Together with the upgrading, the size of the market would also increase rapidly, marching toward the 100 percent GDP target by 2025, while the figure may reach 120 percent GDP by 2030 with 10 million active securities accounts.

The question is what Vietnam has to do to obtain the upgrading.

Since early 2022, the government has been taking measures to restructure the stock market, address the operating methods of member companies of the exchanges, and strengthen supervision and inspection of listed companies. Government agencies have also made corporate bond issuances transparent, improving the reputation of Vietnam's stock market internationally.

However, though great progress has been made, some problems still exist.

Despite efforts by involved parties, Vietnam still failed to put KRX, the transaction system using South Korean technology, into operation in 2023, so this is the most important task for now.

After KRX becomes operational, Vietnam will still need a clearing center which ensures smooth transactions on the bourse. By that time, foreign investors will be able to carry out margin trading instead of having to pay enough cash for the amount of shares they want to buy.

This will help increase the purchasing power of foreign investment funds by billions of dollars. And this will stop the pre-funding requirement applied to foreign institutional investors, which is believed to be the major reason preventing the Vietnamese market from being upgraded by FTSE (Financial Times Stock Exchange) to emerging market. The removal of pre-funding requirement also is in line with international practice applied to emerging and developed markets.

The foreign ownership ratio limit is also a problem. There are many bluechips which are not open to foreign investors for many years, which is the barrier preventing large financial institutions from joining the Vietnamese market. FPT, ACB, GMD, TPB and VIB are examples.

Nhan believes that Vietnam can learn from Thailand when dealing with the problem. Thailand issues non-voting depository receipt (NVDP) which allows foreign investors to acquire the shares they want, while enterprises will not lose the ownership or veto rights. 

Manh Ha