Upgrading the Vietnamese Stock Market: Opportunity for Investors

Tisco Advisory, a Thai consulting firm, assesses that if Vietnam is upgraded to an emerging stock market in 2024, the market capitalization could grow by up to 30%.

The Bangkok Post newspaper, on October 30th, quoted a report from Tisco Advisory, a subsidiary of Tisco Bank in Thailand, stating that investors should monitor the Vietnamese stock market and prepare to seize the opportunity if the Vietnamese stock market is upgraded from a frontier market to an emerging market.

According to Tisco Advisory's report, the Vietnamese stock market is currently attracting significant foreign investors' interest and is expected to draw in foreign capital worth $4 billion in 2024.

Tisco Advisory has summarized the key points that investors need to be aware of regarding the Vietnamese stock market, which is experiencing the fastest growth rate in Southeast Asia.

Firstly, the State Securities Commission of Vietnam is in the process of finalizing the securities settlement system for foreign investors, with the aim of transforming the Vietnamese stock market into an emerging market.

Under the current system, foreign investors buying stocks in the Vietnamese market are required to make full payment on the same day, known as T+0 settlement.

With the new clearing and settlement system, foreign investors buying stocks today can settle within two days (T+2), which is considered an international standard for settlement.

Tisco Advisory believes that the transition to T+2 settlement is significant because the Vietnamese stock market is currently classified as a frontier market and to be upgraded to an emerging market similar to markets in Thailand, China, India, Indonesia, and the Philippines.

The Vietnamese stock market is improving its settlement system, aligning it with international standards.

Secondly, global major securities companies, including FTSE and MSCI, are assisting in the upgrade of the Vietnamese stock market. FTSE's criteria are less stringent than MSCI's, as MSCI requires Vietnam to modify foreign ownership limits for listed companies. If this process proceeds as planned, the upgrade will be announced in September 2024, and the actual upgrade process will take place in September 2025.

According to Tisco Advisory, the Vietnamese stock market has the largest market capitalization within the FTSE Frontier Index, followed by Morocco, Bangladesh, Oman, Peru, and Kazakhstan. When becoming a new member of emerging stock markets, Vietnam is expected to have a weight of approximately 1% in the FTSE Emerging Markets Index.

According to the report, as a newly emerging market, the Vietnamese stock market will attract investments from foreign passive funds of up to $800 million, which is five times the investments made by active foreign funds.

The market upgrade also provides an opportunity for the Vietnamese stock market to attract investment from foreign financial institutions. Among them, the most immediate and significant impact is expected to come from the purchasing of ETFs (Exchange-Traded Funds) that use the MSCI Emerging Markets Index as a benchmark.

Tisco Advisory's report highlights positive prospects for the short term in the Vietnamese stock market. The Vietnamese stock market is anticipated to outperform other Asian stock markets. In the long term, it will be driven by fundamental factors, the growth of net profits of listed companies, and capital flows.

Foreign investor inflows will encourage the Vietnamese market to trade at a higher price-to-earnings (PE) ratio. (PE is a valuation ratio that measures the relationship between a stock's market price and its earnings per share.)

The report by Tisco Advisory also suggests that the Vietnamese stock market may see a more than 30% increase based on the PE ratio in 2024, surpassing the historical five-year average of 12.25 times, although it remains below the historical average.

Tisco Advisory states that if Vietnam truly becomes an emerging stock market in 2024, the market capitalization could grow by up to 30%.

Previously, during the Annual Conference of the World Federation of Exchanges (WFE) held from September 19-21, 2023, the WFE General Assembly voted unanimously to admit the Ho Chi Minh City Stock Exchange (HSX) as a full member of WFE.

This event marks a significant step in the integration of the Ho Chi Minh City Stock Exchange, contributing to the promotion and attraction of foreign investment into the Vietnamese stock market.

Source: VietnamPlus, October 2023.