The VanEck Vietnam ETF (VNM ) gained 2% over the past month. One obvious reason for that rally is recent commentary from index provider FTSE Russell. The commentary pertains to Vietnam’s aspirations of graduating from frontier markets classification to emerging markets territory.
That’s a long-held goal by the government in the Southeast Asian nation. It explains VNM’s various episodes of bullishness in recent years. FTSE Russell released its annual market classification announcement last week. The index provider reiterated that Vietnam remains on the watch list for possible promotion to secondary emerging markets status.
Such a promotion is highly relevant to investors considering VNM. Vietnamese stocks are likely to be small parts of broader emerging markets benchmarks. Still, the potential move out of frontier markets status could imply reduced volatility. It is also validation of Vietnam’s various efforts to liberalize its financial markets.
Vietnam Has Some Work to Do
Index providers don’t take market classification promotions lightly. FTSE Russell points out there’s work to be done before Vietnam earns its emerging markets stripes. That includes updating of rules governing international investor participation in Vietnamese markets.
“The next relevant announcement is anticipated to be the release of more detailed operating rules by the Vietnam Securities Depository and Clearing Corporation (VSDCC). FTSE Russell continues to encourage meetings between the local Vietnamese entities and the international investment community, to ensure these rules meet the needs of the relevant international, and local participants, that will use them,” according to FTSE Russell.
The index provider said Vietnamese regulators need to communicate those rules “relatively soon” if the country is to meet its goal of attaining emerging markets status in 2025. That could require a brisker pace of work between the State Securities Commission of Vietnam (SSC) and the Ministry of Finance, which is possible. There is evidence that regulators and monetary policy bodies in Vietnam are on board with the emerging markets goal and are working cohesively to that effect.
“FTSE Russell notes the continued support of the Vietnamese government for the market reforms and remains appreciative of the constructive relationship with the SSC, other market authorities, and the World Bank Group, who is supporting the wider market reform programme,” added FTSE Russell.
Currently, Vietnam is one of 30 countries FTSE Russell classifies as frontier markets.
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