Hana Securities said on the 24th that while Vietnam's upgrade to FTSE emerging market status will serve as a catalyst that could expand the possibility of a change in the medium- to long-term supply-demand structure, geopolitical risk has recently been putting downward pressure on Vietnam's stock market.
Global index provider FTSE Russell in the United Kingdom will release an interim review on Vietnam's emerging market upgrade on the 7th of next month. Earlier, in Oct. last year, FTSE indicated it would reclassify Vietnam's stock market from frontier to emerging and, on the condition that it passes the interim review in Mar. this year, begin full inclusion from Sep. of the same year.
Kim Geun-a at Hana Securities said, "This announcement is a key event to confirm whether the upgrade of Vietnam's stock market is a near certainty," adding, "If the upgrade is confirmed in this interim review, it will serve as a catalyst to spotlight the possibility of a change in the medium- to long-term supply-demand structure of Vietnam's stock market beyond a one-off positive factor."
Kim said, "If upgraded, not only passive funds but also active funds amounting to billions of dollars are expected to flow in, which will ease the pressure of foreign capital outflows that has continued and act as a factor improving supply-demand conditions over the medium to long term."
However, recent geopolitical risk is both increasing downward pressure on Vietnam's stock market and limiting foreign capital inflows. Vietnam is an oil producer, but it relies on imports for a significant portion of energy for domestic consumption. More than 80% of that is exposed to risk in the Strait of Hormuz.
Kim said, "A surge in international oil prices due to heightened tensions between the United States and Iran will increase inflationary pressure and also be a burden on achieving the government's 10% growth target," adding, "This will negatively affect investor sentiment toward Vietnam's stock market."
Assuming simply that international oil prices remain at $100 per barrel for a prolonged period, the size of Vietnam's current account surplus as a share of gross domestic product (GDP) could shrink by about 0.8 percentage point. Taking other factors into account, the actual impact would be larger. At the same time, it could intensify depreciation pressure on the dong against the dollar, slow the pace of foreign capital inflows, and limit the short-term reflection of expectations for an FTSE upgrade.
Kim said, "A full-fledged improvement in foreign supply-demand will only be possible after stability in oil prices and the exchange rate is confirmed," adding, "Rather than being a momentum to change the market's immediate direction, the FTSE upgrade issue should be interpreted as an institutional catalyst that can support the normalization of supply-demand and the improvement of investor sentiment in Vietnam's stock market after external uncertainties ease."