However, he also highlighted several crucial issues that need to be resolved in order to transform the stock market into a "transparent" and "professionalized" entity.
JOURNALIST: - Sir, what benefits will upgrading the stock market bring?
Dr. CẤN VĂN LỰC: - The stock market plays an increasingly vital role in the Vietnamese financial system as a channel for both enterprises and investors to channel capital into medium to long-term investments. The ability to attract foreign capital inflows also depends on the liquidity, quality, and efficiency of the market. International investors often rely on evaluations from organizations such as FTSE and MSCI when making investment decisions. If Vietnam were to achieve emerging market status in these assessments, the impact would be substantial. It would attract more significant, more stable, and diversified capital flows from foreign investors.
Investment funds and fund management companies typically allocate a considerable portion of their investments to developed and emerging markets due to their stability, diverse product offerings, and larger transaction scales compared to frontier markets. Therefore, achieving emerging market status would attract substantial medium- and long-term investment capital. Passive investment funds, like ETFs, which typically focus on emerging markets, automatically allocate a portion of their capital to upgraded markets, usually limiting exposure to frontier markets to 2-3% of their portfolio.
This necessitates the improvement of various conditions, including information transparency, institutional framework, mechanisms, and trading conditions in the stock market. It prompts the stock market to work towards meeting the upgrade criteria set by these rating organizations. The development of the stock market not only benefits the financial system but also promotes a more balanced development of the country's economy. It provides businesses with additional channels to raise capital, and investors gain access to more reliable medium- and long-term investment opportunities, contributing to overall economic growth.
- To achieve the government's goal of upgrading the stock market before 2025 as outlined in the "Restructuring the Stock Market and Insurance Market Project for 2020, with a Vision to 2025," what solutions should be implemented?
- In my view, the focus in the latter part of 2023 and throughout 2024 should be on addressing payment-related issues. The most critical change should be the elimination of the requirement that investors must have funds available at the time of placing orders, as stipulated in Circular 120/2020/TT-BTC from the Ministry of Finance. Instead, investors should be required to have funds available at the time of receiving shares, a common practice in developed markets. This change must be completed by 2024 (FTSE announces rankings twice a year, in March and September), allowing Vietnam to achieve its upgrade goal.
- Currently, the most pressing issues during the stock market upgrade process are foreign ownership and the potential liberalization of the foreign exchange market. What solutions are needed to address these challenges, in your opinion?
- Foreign ownership in Vietnam is currently regulated by Government Decree 155/2020/ND-CP. The regulations state that foreign ownership limits are determined by (i) international treaties of which Vietnam is a member; (ii) specific industry laws; (iii) regulations listed in industries with restricted foreign market access. In cases where no specific regulations exist, the maximum foreign ownership ratio is set at 50% of charter capital. The challenge lies in industries with foreign ownership restrictions and those on the list of restricted market access. To address the foreign ownership issue, Vietnam needs to revise regulations for each industry and reconsider industries that limit foreign investor market access.
Regarding the liberalization of the foreign exchange market, MSCI assesses the standard of market liberalization as having a freely convertible currency, including an active foreign currency market. These conditions have not yet been met by Vietnam. The VND is not freely convertible because the country tightly controls payment transactions and foreign currency transfers. Converting VND to other currencies and vice versa is not straightforward and sometimes requires the use of a "third" foreign currency. The absence of foreign exchange trading markets abroad also hampers foreign investors' ability to convert VND to other foreign currencies. Vietnam needs to amend existing legal documents, such as the Foreign Exchange Ordinance, and Decree 70/2014/ND-CP, to promote liberalization by reducing restrictions on foreign exchange transactions and money transfer activities into and out of Vietnam.
- Thank you very much.
