Viet Nam remaining a frontier market: MSCI

Monday, Jun 25, 2018 08:36

Investors at a trading session at VNDirect Stock Exchange Floor. — VNA/VNS Photo Pham Hau

Morgan Stanley Capital International (MSCI) has decided to hold Viet Nam’s status in the equity market in the Frontier Markets Index until 2019.

It means Viet Nam will remain in the MSCI Frontier Markets Index for at least two more years before being given a chance to raise its status from a frontier market to an emerging market.

In its latest report, MSCI announced it included the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index and the reclassification of the MSCI Argentina Index from Frontier Markets to Emerging Markets status beginning June 2019.

More importantly, MSCI disclosed the inclusion of the MSCI Kuwait Index in the 2019 Annual Market Classification Review for a potential reclassification from Frontier Markets to Emerging Markets status.

The decision was made on June 21.

According to MSCI, the promotion of the Vietnamese equity market would depend largely on the improvement of eight items: foreign ownership limits, foreign room levels, equal rights for foreign investors, foreign exchange market liberalisation levels, information and market regulation English disclosure, clearing and settlement, and transferability.

“Regarding Viet Nam’s stock market, MSCI recognised an improvement for the ‘investor registration and account set up’ criterion, while maintaining the assessment for all remaining criteria (including nine requirements for improvement),” Bao Viet Securities Co (BVSC) said in a report.

“In general, from our view, the results of the MSCI review indicate slow improvement in Viet Nam’s stock market. Even in comparision to the two frontier markets in the region which are Bangladesh and Sri Lanka, Viet Nam still needs to improve the most,” BVSC said.

There had been speculation that MSCI was concerned about strong foreign sell-offs on the Vietnamese stock market since mid-April when the benchmark VN Index hit its record high of 1,204.33 points, especially after the US Federal Reserves (Fed) raised its interest rates two weeks ago and signalled two more hikes this year.

Net foreign selling has touched around VND 5 trillion since that day and has caused hesitation among foreign investors given the context of high local corporate earnings and the stable development of Viet Nam’s economy.

But it may be a good thing for the Vietnamese equity market, according to Nguyen Quang Thuan, CEO of StoxPlus.

Though being promoted to an emerging market or being included in the classification review could help the Vietnamese equity market lure more foreign capital and make it more transparent, it could also make the local market more volatile and riskier, he said on his personal page.

The promotion would attract more portfolio money, which could either enter or leave raking, making the Vietnamese equity market more volatile as the market has been dominated by individual trading, which accounts for 70 per cent of daily trading and has already made it volatile, he said.

However, market regulators and local enterprises should not ignore the latest MSCI announcement for the overall development of the Vietnamese market on becoming a internationally-standardised market, he said.

According to SSI Research, the Government should enhance its divestment from listed firms and other State-owned enterprises (SOEs) to lure more foreign capital inflow.

Moreover, the foreign currency market must be well-organised to meet the demands of foreign investors wishing to transfer money in and out of Viet Nam, SSI Research said, adding that Viet Nam could be raised from a frontier market to an emerging market in 2020. – VNS

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