Vietnam, which currently is considered a “frontier market” in terms of financial status, has set up a team to seek an upgrade to “emerging market” status. As explained in this video, the Vietnamese economy still has some hurdles to pass in order to achieve the status, but the economic benefits, especially towards stocks prices could be important.
To obtain the “Emerging Market” status from MSCI, like its neighbors, Vietnam would need to overcome several challenges.
Challenges of the Vietnamese economy
- Vietnam currently has two stock exchanges, the Hanoi Stock Exchange – HNX – and the Hochiminh Stock Exchange – HOSE. To get upgraded, Vietnam would need to combine the two stock exchanges into a single one.
- Foreign ownership in large companies is currently limited to 49%. Many companies have already reached that limit and are therefore unable to obtain more foreign capital.
- State-owned companies should be looking towards privatization. They should also be listed on the stock exchange without delay, as the valuation when the company is privatized could differ from the pricing obtain through the market, potentially generating important discrepancies and insecurity for investors.
For more information on the strengths and challenges of Vietnam, watch:
Benefits of the “Emerging Market” status
- Recent status upgrades in the United Arab Emirates and in Qatar suggest that the Vietnamese stock market could see value of listed companies increase sharply, with values potentially doubling.
- As investors specialized in emerging economies become interested in Vietnam, a large inflow of capital could raise the value of stocks, therefore also benefiting the broader Vietnamese economy.
Bloomberg video published in October 2014