Vietnam Likely to Relax Foreign Equity Limits for Market Status Upgrade

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HANOI – In a bid to attract more foreign investment, Vietnam is lobbying to have its market status at New York based index provider MSCI Inc. upgraded from frontier-market to emerging-market status.

An upgrade in market classification can yield significant benefits for a country, as evidenced by Qatar and the UAE. In the 12 months following MCSI’s June 2013 announcement that these nations would be upgraded to emerging-market status, their benchmark stock indexes rose some 38 percent.

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Vietnam, a member of ASEAN, is not currently being reviewed for an upgrade, said Hong Kong-based MSCI managing director Chin-Ping Chia. According to the index provider’s website, the emerging-market ranking requires “significant” openness to foreign ownership and ease of capital flows, as well as minimum levels of liquidity and market-capitalization.

In response, Vietnam’s State Securities Commission has formed a team to determine what needs to be done in order to qualify for an upgrade. This is encouraging news for Vietnam-facing investors, as likely topping the list will be a relaxation of the Southeast Asian Country’s foreign equity limits, currently at 49 percent.

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In fact, last November, the Ministry of Finance submitted a plan to Prime Minister Nguyen Tan Dung that recommended lifting the limit on foreigners’ holdings of voting shares in some industries to 60 percent. The proposal, which is still being mulled over, now looks likely to go through.

The current ownership limits have prevented investors from buying all the shares that they want. According to Tran Van Dung, chairman and chief executive officer at the Hanoi Stock Exchange, foreign inflows are “below potential.”

There is some way to go yet, but Vietnam has been taking various steps to bolster its estimated US$60 billion market, attract foreign investment, and increase liquidity.

Plans are underway to merge the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange into the Vietnam Stock Exchange by 2015, and to sell shares of over 400 state owned firms. State Owned Enterprises (SOEs) have been recently urged by the government to list on the stock market soon after they become public firms.

An upgrade to emerging-market status, enjoyed by the likes of Thailand, Indonesia, Malaysia and China, has the potential to attract billions of dollars in investment.

It’ll be a huge opportunity if we get upgraded,” said Michael Kokalari, a Ho Chi Minh City-based analyst at CIMB Securities International Ltd.,  “The universe of the index would be much, much bigger.”

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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