By Phuong Nguyen and Francesco Guarascio
HANOI (Reuters) -Vietnam is preparing for a decision on Tuesday by index provider FTSE Russell that could upgrade its stock market to emerging status alongside China and India, potentially unlocking billions of dollars in foreign investment.
The Southeast Asian nation is currently classified as a frontier market both by FTSE and rival MSCI, a designation seen as riskier that prevents many institutional investors and passive funds from buying shares of locally
listed companies.
FTSE said in a note last month that it would make an announcement about Vietnam's possible reclassification on October 7 after the close of the U.S. market as part of a regular annual review.
Vietnam's benchmark index has surged 30% this year, making it one of the top-performing stock markets in Asia. But foreign investors have dumped shares, amid exchange rate volatility, a credit boom that risks fuelling asset bubbles and profit-taking.
CONFIDENCE AFTER YEARS ON WATCHLIST
Vietnam has been on FTSE's watchlist for reclassification since 2018, but the upcoming announcement is drawing heightened attention after the country recently implemented multiple market reforms to meet the index's requirements.
Finance Minister Nguyen Van Thang last month expressed confidence in an imminent upgrade.
Even if FTSE gives the green light on Tuesday, Vietnam's actual reclassification would take at least six months under the index's procedures.
While the move would fall slightly short of the government's goal to be included in an emerging index by 2025, it would still mark significant progress. MSCI, which has stricter requirements, is not expected to upgrade Vietnam soon.
UPGRADE WOULD LEAD TO CAPITAL INFLOWS
Vietnam's stock market, home to around 1,600 listed companies and with a value exceeding $300 billion, holds a 36% weight in the FTSE frontier index, far ahead of peers such as Bangladesh, Kenya and Morocco.
A promotion to secondary emerging market status would place Vietnam in the same category as larger markets including China, India, Indonesia and Saudi Arabia, though with a modest weight.
HSBC estimated last month Vietnam could account for a 0.5% weight in the FTSE emerging market index, potentially attracting $3.4 billion in inflows, including $1.5 billion from passive funds.
The World Bank has projected short-term inflows of about $5 billion before and after the upgrade from both passive and active investors.
Some local analysts were cautious. "The reclassification narrative has lost its strength as a compelling market driver," said broker Mirae Asset Securities in a note on Monday.
Investor reaction to a possible delay remains uncertain, but is also predicted to be muted.
"Investor sentiment, both local and foreign, is unlikely to turn significantly negative," said Hoang Huy, equity strategist at Maybank Securities.
(Reporting by Phuong Nguyen and Francesco Guarascio; Editing by Jamie Freed)
