Investors were recommended to watch the Vietnamese bourse and be prepared to grasp its potential if it is upgraded from a frontier market to an emerging stock market, says Tisco Advisory.
The Vietnamese stock market now appeals to many foreign investors and is expected to attract US$4 billion worth of foreign inflows next year, the unit of Tisco Bank said in a recent report.
Tisco Advisory compiled key points investors should know about the Vietnamese exchange, which has one of the highest growth rates in the Southeast Asia.
First, the Vietnam State Securities Commission is preparing to improve the securities settlement system for foreign investors in order to establish the bourse as an emerging market.
Under the current system, foreign investors who buy stocks in the Vietnamese market have to pay the full amount within one day, called T+0 settlement.
Based on the new clearing and settlement system, foreign investors who buy stocks today can make the payment within two days, or T+2, which is considered an international payment criterion.
The Stock Exchange of Thailand has a T+2 settlement system only for cash balance accounts.
“The T+2 trading settlement is important because the Vietnamese stock market, now considered a frontier stock market, wants to upgrade its status to an emerging market similar to exchanges in Thailand, China, India, Indonesia and the Philippines,” said Tisco Advisory.
“The bourse is improving its payment system to be similar to international markets.”
Second, the world’s major stock market companies, including FTSE and MSCI, are helping to upgrade the Vietnamese exchange.
The FTSE criteria are less stringent than that of MSCI, which requires Vietnam to amend the foreign ownership limit for listed companies.
If the process goes as planned, an announcement is planned for September 2024, with the upgrade occurring in September 2025.
Vietnam’s stock market has the largest market capitalisation in the FTSE Frontier Index, followed by Morocco, Bangladesh, Oman, Peru and Kazakhstan, according to Tisco Advisory.
As a new player among emerging market bourses, Vietnam is expected to have a weight in the FTSE Emerging Markets Index of roughly 1%.
When the Vietnamese stock exchange becomes an emerging market, it aims to attract investments from foreign passive funds of up to $800 million, with five times more in foreign active funds, according to the report.
“Tisco Advisory has a positive outlook for the Vietnamese stock market in the short term. The bourse should outperform other Asian bourses,” noted the report.
For the long term, Vietnam’s stock market will be driven by fundamentals, the growth of listed firms’ net profit, and fund flows.
Inflows from foreign investors should encourage the Vietnamese market to trade at a higher price-to-earnings (PE) ratio, said Tisco Advisory.
The Vietnamese stock market has an upside of more than 30% based on a forward PE in 2024 of 9 times, which is lower than the five-year historical average of 12.25 times, noted the report.
If Vietnam truly becomes an emerging stock market next year, the market capitalisation has the potential to grow by up to 30%, said Tisco Advisory.