Vietnamese stocks become more attractive to foreign 'sharks' thanks to new circular

The official permission for foreign institutional investors to buy stocks without having to have enough money in their accounts has become an important milestone in the journey to upgrade the Vietnamese stock market, increasing its attractiveness to foreign "sharks".

Vietnam's stock market will attract more foreign capital if it is upgraded from frontier to emerging in the near future - Photo: BONG MAI

Circular 68 issued by the Ministry of Finance, which took effect earlier this month, allows foreign institutional investors to buy stocks without having to have enough money in their accounts. This is an important milestone in the Vietnamese securities industry in its journey to raise the market cap.

Demonstrating the Government 's commitment to attracting foreign capital into Vietnamese securities

In response to the remarkable developments, Mr. Barry Weisblatt David - Director of Analysis at VNDirect Securities Joint Stock Company - said: "This Circular is very important, demonstrating the Government's commitment to attracting foreign investment capital into the Vietnamese stock market. This is expected to be part of the trend of turning Vietnam into an attractive investment destination."

With the circular just taking effect, Mr. Barry pointed out the direct and indirect impacts on our country's stock market.

The new regulations will prompt some active fund managers to increase their allocations to Vietnam as investing becomes more cost-effective. However, this range is quite small, not affecting the allocations from Vietnam-dedicated funds such as PYN, Dragon Capital or VinaCapital because they are 100% invested in Vietnam. Although their profits will increase slightly.

Accordingly, the circular will apply mainly to regional funds or funds specializing in global frontier and emerging markets with an interest in Vietnam.

The bigger impact is the indirect effect of the increased likelihood that market ratings agency FTSE will announce an upgrade to emerging markets in March. This announcement should positively improve market sentiment and retail investor buying power.

Foreign exchange-traded funds (ETFs) that mimic the Vietnamese market could see their assets under management increase as investors in overseas markets anticipate an emerging market upgrade, which could be a significant event and boost stock prices in the first quarter of 2025.

Accordingly, listed companies that benefit may include businesses that are dominating the FTSE FM index, including: Hoa Phat Steel - HPG, Vinhomes - VHM, Vietcombank - VCB, Vingroup - VIC and Vinamilk - VNM.

Securities companies need to increase risk management, not take shortcuts.

Mr. Barry Weisblatt David also noted that Circular 68 creates some risks for securities companies, which must bear the risk of payment default by foreign institutional investors and must include securities in the trading portfolio of self-trading.

"This is something new for us. Previously, we also performed KYC for foreign clients, but did not have to assess counterparty risk. Currently, there are only a few securities companies operating strongly in the brokerage segment for foreign institutional clients.

However, they will need to invest significantly in developing systems and policies to assess this risk and deploy the product to customers.

The risk for the market is that securities companies intending to expand their presence in this field and capture market share from foreign investors need to implement relevant risk management measures and not take shortcuts."

Accordingly, securities companies need to comply with the guidance of the Vietnam Securities Depository (VDS) and the directives of Circular 68 to receive customers and deploy services as requested. At the same time, they can work with consulting organizations belonging to the Big-4 auditing group (the world's four largest auditing firms) to establish counterparty risk assessments for each customer.

Internally, large securities companies leverage superior technological capabilities to enhance risk management, providing seamless customer experiences during trading under new regulations.

Source: https://tuoitre.vn/chung-khoan-viet-tang-suc-hap-dan-voi-ca-map-ngoai-tu-thong-tu-moi-20241104163855329.htm