Speaking at a conference on the development of Vietnam’s stock market on February 28 in Hanoi, Mr. Ketut Ariadi Kusuma, Head of the Finance and Competition Group at the World Bank, expressed his belief in the Vietnamese Government’s determination to upgrade the market’s status from frontier to emerging by 2025 through the implementation of well-crafted strategies and detailed plans.

Vietnam is currently classified as a frontier market (FM) by MSCI and FTSE Russell and is included in the frontier market index, he told the gathering. Its stock market still accounts for the largest proportion within the FM index basket, at over 30 per cent of total assets under management (AUM), and has reached the expected limit within the frontier market index basket.

Since September 2018, Vietnam has been included on the watchlist of potential markets for reclassification to emerging market by FTSE Russell, and has been under periodic review by MSCI. The upgrade will provide a significant boost to the country’s capital market, increasing its accessibility to foreign investors. The Vietnamese market would reach a scale and liquidity comparable to that of other countries with similar levels of development.

“The World Bank predicts that the upgrade to emerging market would help Vietnam attract an additional $25 billion in international investment capital by 2030, with some important conditions," Mr. Kusuma emphasized.

The first condition is that the Vietnamese market needs to be reclassified by both FTSE Russell and MSCI. The World Bank appreciates and agrees with the approach of the State Securities Commission (SSC) of Vietnam, to prioritize the upgrade from FTSE Russell first. However, it also notes that the majority of new investments will come after the upgrade by MSCI.

Secondly, the State needs to address issues related to foreign ownership limits (FOL) and the equitization of large State-owned enterprises (SOEs). Solutions proposed by Mr. Kusuma include disclosure practices, increasing access to stocks that have reached their limit, and, most importantly, raising the FOL.

If the FOL were to remain, Vietnam would only receive an extra $5 billion in investment, as its market accounts for less than 1 per cent of global emerging market indices.

Lastly, there needs to be a healthy global investment environment so that Vietnam can benefit from the increase in investments into emerging markets, with an estimated growth of 7 per cent annually. This means that Vietnam can attract an additional $8-12 billion in investment by 2030.

The World Bank also emphasized the importance of developing a domestic investment base to accompany and match foreign investments, in which the diversification of investments by the Vietnam Social Security (VSS) fund would be crucial.

Diversifying VSS’s investments into corporate stocks would not only help the fund achieve long-term investment effectiveness but also broaden the investor base and stabilize and develop the domestic capital market.

A modest allocation to corporate stocks by VSS could translate into billions of additional dollars in funding for the corporate sector. Comprehensive reforms in the pension sector could potentially bring about new investments of up to $25 billion into the corporate sector by 2030.

Further reforms in the insurance and investment sectors, if done correctly, would provide an additional $28 billion for companies through the capital market. In total, Mr. Kusuma estimates that the potential for new capital mobilization of Vietnam to be in the order of $78 billion.

The increasing investment demand in Vietnam emphasizes the need for high-quality financial products, especially corporate stocks and bonds. This underscores the importance of a healthy ecosystem, including rigorous oversight, transparent disclosure, and reliable credit ratings.

This will ensure that extra capital into the stock market will provide funding for the development of companies that are operating effectively, as well as recapitalize banks and provide funds for infrastructure projects or innovative industries, and not just benefit current shareholders.

“The World Bank stands ready to support Vietnam on all these fronts,” he told the conference. “We hope to achieve breakthrough success this year.”