By Son Tran, VDSC, Email: son.tt@vdsc.com.vn
In the last FTSE’s annual review published in September 2018, Vietnam was added to the watch list for possible upgrade to Secondary Emerging Market in the future. In general, a country needs to be on the watch list for at least one year before a possible upgrading announcement and then another year before the official reclassification. Therefore, in an ideal scenario, Vietnam reach this status in September 2020.
Kuwait, China A shares and Saudi Arabia were the newest Secondary Emerging markets. Let’s have a look at their journeys below and see how close Vietnam is to the status.
Figure: FTSE’s upgrading process for Secondary Emerging Market in recent years
Kuwait: after being added to the watch list in September 2008, Kuwait had to wait for ten years before achieving the status in 2018. The outstanding criteria was “Clearing & Settlement – T+2/T+3” which was addressed in May 2017 by the country. See table below for “Quality of Markets Matrix”.
China A shares: increasing accessibility of the China A-share market for international investors was a long-lasting problem for China. It refers to the “formal stock market regulatory authorities actively monitoring the market” criteria which was finally met by the country in early 2018, just before the upgrading announcement from FTSE.
Saudi Arabia: after three years of being on the watch list, the country fulfilled two outstanding criteria which were “settlement – rare incidences of failed trades” and “clearing & settlement – T+2/T+3”. At a result, FTSE announced the upgrade of Saudi Arabia in September 2018.
To sum up, all three countries were added to the FTSE’s watch list even when they were still not meeting all criteria. The upgrading announcement came right after they fulfilled the requirements. Considering that Vietnam was added to the watch list while it had met nine out of nine criteria, we believe if it can maintain these conditions throughout the ongoing review year, Vietnam will be upgraded to Secondary Emerging Market status in 2020.
Table: FTSE Quality of Markets
