Việt Nam’s Market Upgrade Signals A New Phase For Capital Flows | Vietnam Today

The market upgrade is signaling a new phase for capital inflows. Today, on April the 8th, global index provider Fossil Russia confirmed the upgrade of Vietnam to emerging market status, starting September 21st this year, based on its interim review. This marks a long-awaited milestone for Vietnam's equity market, reflecting years of regulatory reform and improved market accessibility. The upgrade is expected to attract large-scale international capital inflows, with estimates ranging between $6 and $8 billion. With this upgrade to emerging market status, Vietnam is now seen as more accessible and better aligned with global investment standards. This means more Vietnamese stocks can be included in international indices, helping attract stronger foreign inflows, improve market liquidity, and lower the cost of capital for businesses. More broadly, it reinforces investor confidence and strengthens Vietnam's position in the global financial system. So how were Vietnam's efforts in market reform translated into Fossil's interim review results? And what are the mid- and long-term impacts of the upgrade on Vietnam's equity market? To help us elaborate on those questions, we are now connecting live with Matthew Smith, Head of Institutional Research at Yuanta Securities, for a discussion on the news. Mr. Smith, thank you for joining us. So first, how do you assess the latest interim review by Fossil Russia on Vietnam's equity market, particularly in terms of the remaining criteria for a potential upgrade? I think you've read the statement, so you know that. The upgrade was confirmed by this morning's announcement. The timeline for it begins in September in a staged manner. The inflows, I think, will start in September and continue out of the next, each quarter, or almost each quarter over the next year. So that's all quite positive. Under the new approach in Circular 8, the global brokers can basically face the broker on the ground here in Vietnam that executes the trade. This global brokers thing, they added that on as an additional target to achieve in order to facilitate the portfolio transactions of global emerging markets funds. So by making that change in Circular 8, obviously the equity decided that the changes are sufficient. And I think that's wonderful. It's great news. Right. And next, market experience suggests that while an upgrade can drive strong inflows in the medium term, momentum may taper off after the reclassification. In your view, how can Vietnam sustain investor confidence and ensure long-term market stability beyond the upgrade milestone? So what does Vietnam need to do to increase that? I think continuing on the path that the authorities have set for achieving an upgrade by MSCI will make that happen. That will actually allow for an alleviation of some of these settlements problems, potentially make it easier for the non-prefunding system to work a little bit better. That would enable more foreign funds to come into Vietnam without having to worry about the prefunding problem. So as I said, $1.5 billion or so of inflows should be coming out of the FTSE upgrade. But in the case of MSCI, it is much, much larger, both in terms of passive funds that are benchmarked to MSCI indexes. And finally, FTSE Russia's latest announcement indicates that 32 Vietnamese companies are expected to be included in the FTSE Global All-Cap Index. What are your key takeaways from this election, particularly in terms of sector representation, market liquidity, market quality, and implications for passive fund inflows? I think that there's probably more industrial names in there. There's probably more property as well in terms of total weighting and property developers and industrial property. Also, the overall fewer banks. And in the case of FTSE's Vietnam index, the allocation to banks will be lower. And erotically, or good for brokers, I guess, the allocation to brokers is quite high. And one of the reasons for that is that the brokerages tend to not have foreign ownership limits. SSI, VN Direct, and I think Viet Capital are all on that list. And all of these three brokers have no foreign ownership limit. All of the banks still today are limited to 30% caps on their foreign ownership. And for that reason, a lot of the higher quality banks are not actually included on that list. So it's interesting. Mr. Smith, thank you for your insights.