The current situation of Vietnam
To materialize its goal of reaching the Emerging Market status by 2025, great efforts, including the conclusion of back-to-back-to-back Free Trade Agreements with powerful allies, issuance of new laws to promote the market, have been made by Vietnam in the recent years. However, according to the latest Market Classification issued by Morgan Stanley Capital International (MSCI), Vietnam continues to be classified as a Frontier Market. According to the MSCI, Vietnam remains a Frontier Market for the following reasons:
1. Foreign Ownership Limit Level: Limited foreign ownership,
ranging from zero to fifty-one percent, applies to companies
operating in specific sensitive and restricted industries. Still,
over ten percent of the Vietnamese equities market is impacted by
these restrictions.
2. Foreign Room Level: As the foreign ownership limit level remains
for some sensitive sector, the foreign room level is deemed as low
and the equity market is significantly impacted accordingly.
3. Equal Rights to Foreign Investors, Information Flow, Market
Regulations: Lack of readily available English
information/regulations for foreign investors.
4. Foreign Exchange Market Liberalization Level: Both the onshore
and offshore currency markets are restricted (for example, foreign
exchange transactions need to be connected to securities
transactions).
5. Investor Registration & Account Set Up: Registration for
security trading, as a mandatory procedure, can be time-consuming
and costly. Further, account setup requires the approval of the
Vietnam Securities Depository and Clearing Corporation.
6. Clearing and Settlement: Funding of trade must be done in
advance, and there are no overdraft facilities.
Recommended action plan
To address MSCI's concerns as well as foreign investors' concerns, the following action plan should be carefully considered by the competent authorities of Vietnam:
1. To make the optimal use of the already-concluded Free Trade
Agreements (i.e. CPTPP, EVFTA, EVIPA), the Government should do its
homework and ensure that foreign investors receive the best
possible treatment when they make their decisions to invest in
Vietnam. In other words, amendments of the laws and legal reforms
regarding the security market, security trading, investment
procedure, foreign ownership limitation, etc. should be taken into
consideration to reflect the agreement reached in the recent Free
Trade Agreements.
2. To require organizations to adopt English as one of the primary
language regarding information flow for foreign investors to grasp
the idea of the market easily. This action can either be regulated
under relevant laws or can be implemented directly by competent
authorities.
3. To consider translating the new legal regulations into English
on its issuance date for foreign investors to understand the laws
as soon as they can.
4. To seek the support of international commercial experts
For Vietnam to reach its goal of an Emerging Market – Duane Morris Vietnam LLC, led by Dr. Oliver Massmann with almost 25-year working experience in Vietnam, could support the Government in this process.
Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.