MSCI says low free-float among many hurdles for Vietnam stocks

[HANOI] MSCI pointed to low free-float levels at some firms and continued limits on foreign ownership as among hurdles for Vietnam stocks, potentially complicating the country’s push for a market upgrade.

“Certain companies with low free float have been flagged to create investability, transparency and price discovery concerns,” the index compiler said in its latest market accessibility review.

While Vietnam has advanced its capital market reform agenda, curbs on foreign ownership still affect more than 10 per cent of the local equity market, MSCI said. Meanwhile, more than 1 per cent of the MSCI Vietnam IMI is impacted by low foreign room.

Vietnam has taken a series of steps to boost the attractiveness of its equities to global funds in recent years as it seeks an MSCI upgrade to emerging-market by 2030 after securing a similar reclassification from FTSE Russell. Key developments include the introduction of a global broker trading model and the establishment of a central counterparty clearing company which is targeted to go live in 2027.

“The upgrade story is gradually shifting from one about access to one about investability,” Pham Luu Hung, chief economist at SSI Securities, wrote in a note. “Increasing free float through state-owned enterprise stake sales, secondary offerings and new listings may become as important as infrastructure reform in attracting long-term institutional capital.”

The issues raised by MSCI echo some of its concerns over investability in Indonesia’s market. In May, MSCI removed a number of highly concentrated Indonesian stocks from its gauges.

The absence of an offshore currency market and onshore constraints are another obstacle for foreign investors, MSCI said.

An upgrade from frontier markets by MSCI would pave the way for more foreign inflows and potentially give the benchmark index a boost. The VN Index has outperformed most of its South-east Asian peers over the past year. The gauge fell as much as 0.3 per cent on Friday (Jun 19).

FTSE had earlier estimated that its status change may add up to US$6 billion in redirected flows to the country.

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MSCI acknowledged Vietnam’s continued progress on the phased rollout of English-language disclosure requirements and efforts to loosen restrictions on foreign shareholding.

MSCI said it will “continue to monitor the implementation of these reforms closely.” BLOOMBERG