Market Enhancement Highlighted
In a significant move towards modernising its financial markets, Vietnam is embarking on a comprehensive stock market upgrade. The drive, led by Prime Minister Pham Minh Chinh, aims to transform Vietnam's stock market from a frontier to an emerging market, boosting overall economic growth.
The Ministry of Finance (MoF) and the State Securities Commission (SSC) are working in tandem with other authorities to fine-tune legal regulations and modernise infrastructure. Key reform efforts focus on implementing a Central Counterparty Clearing (CCP) system, enhancing legal and administrative frameworks, driving economic growth through investment mobilisation, and fostering international collaboration.
The implementation of the CCP system is a significant step towards enhancing liquidity and investor buying power. By reducing the investor margin requirement from 100% upfront to about 10-20%, this mechanism is expected to strengthen payment safety, enable cross-market risk control, and improve the overall stability of Vietnam’s financial system.
Legal and administrative enhancements include the amendment of Government Decree No. 155/2020/ND-CP to improve transparency in foreign ownership limits and remove outdated regulations that hinder foreign investment. Simplification of administrative procedures related to investment activities by foreign investors is also underway, aiming to cut processing times and facilitate easier market entry.
Prime Minister Pham Minh Chinh has ordered a "triple-acceleration strategy" to boost economic growth above 8%. This strategy calls for an 11-12% year-on-year increase in total social investment, acceleration of public investment disbursement, and elimination of substandard housing nationwide within set deadlines.
International collaboration is a key aspect of the reforms. The Ministry of Finance is working with the London Stock Exchange Group’s FTSE Russell to upgrade capital market infrastructure and develop market indices that aid investors in managing financial risks. The goal is to make Vietnam’s stock market more attractive to regional and global investors, ultimately achieving emerging market status.
Optimism is building on the market front, as the VN-Index has bounced back from its dip in April and is now exceeding recent short-term highs. The SSC is working on the implementation of omnibus accounts, a key structure that simplifies the trading experience for foreign institutional investors.
The expected outcomes from these reform efforts include enhanced investor confidence, increased liquidity and market access, stronger foreign investment inflows, greater economic growth, and an upgraded stock market status to an emerging market. If confirmed, this upgrade could see 20-30 Vietnamese stocks included in FTSE's index baskets, with large-cap stocks such as VNM, HPG, SSI, and several Vingroup affiliates likely to see strong inflows.
The MoF is currently drafting a decree to establish a legal framework for a central counterparty clearing model, addressing post-trade settlement risks and enhancing market efficiency. Circulars on margin trading and information disclosure have been introduced to align legal regulations with international practices.
The expected rise in foreign investment will positively impact Vietnam's financial services sector, especially securities companies and asset managers. Deputy Minister of Finance Nguyen Duc Chi has emphasised that upgrading Vietnam's stock market is a key government priority. Pham Luu Hung, chief economist at SSI Research, assesses the upgrade probability at closer to 90%. Vietnam is fulfilling seven out of nine criteria set by FTSE for emerging market status, with a 70% likelihood of the upgrade being confirmed in September.
A pipeline of new listings and initial public offerings, estimated to contribute $47.5 billion in market capitalization, is expected between now and 2027. The market remains attractively priced, with a current price-to-earnings ratio of around 14 times and a forward ratio estimated at 10-11 times. Improving the investor experience, especially for foreign institutions, is a core condition for market upgrading, according to Deputy Minister Chi.
In conclusion, the reforms led by Prime Minister Pham Minh Chinh and implemented by ministries such as Finance and SSC aim to modernise Vietnam’s financial markets, improve regulatory frameworks, accelerate investments, and establish the country as a dynamic emerging market within the global financial system.
The Ministry of Finance (MoF) and the State Securities Commission (SSC) are endeavoring to bolster the business sector by modernizing infrastructure, implementing a Central Counterparty Clearing (CCP) system, and enhancing legal and administrative frameworks. These efforts are designed to drive economic growth through investment mobilization, particularly by reducing the investor margin requirement, and attracting foreign investors.
The implementation of the CCP system is anticipated to strengthen payment safety, enable cross-market risk control, and improve the overall stability of Vietnam’s financial system, making it more attractive to regional and global investors, ultimately aiming for emerging market status.
