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The introduction of covered warrants and government bond future contracts are expected to help Vietnam garner an MSCI Inc. upgrade to emerging-market status from its current frontier level, Bloomberg reported.
It is the latest step taken by the Vietnamese government, aiming to increase the market’s liquidity by becoming more appealing to foreign funds.
Meanwhile, the government is also under the process of overhauling its Securities Law.
Nguyen Duc Thong, director of derivatives at SSI Securities, the country’s largest brokerage, told Bloomberg this is a signal that Vietnam’s policy is changing and becoming more open to new products.
Covered warrants are expected to help boost the market’s liquidity, which is still “very small,” he added.
Previously, the foreign-ownership limits have been eased for some industries while the government is working to speed up the process of reducing state capital in companies.
SSI will issue six covered warrants codes based on four underlying shares – FPT, Mobile World Investment, Hoa Phat Group and Military Bank , said Thong, who believes the new product will attract more institutional investors and make domestic retail investors more sophisticated.
The Ho Chi Minh City Stock Exchange, the country’s main bourse, plans to start covered warrants trading June 28, the State Securities Commission said last month, while government bond future contracts are scheduled to be available next month. This will help diversify investment products in the stock market, provide tools to prevent risks for investors and boost foreign investment inflows, according to the market regulator.
The benchmark VN Index has gained 7.8% this year after falling 9.3% in 2018. The measure lost 2% in May, its biggest monthly loss since December as intensifying trade tensions hurt market sentiment. Foreign investors have bought a net of US$343 million worth of Vietnamese shares this year through June 10, according to data compiled by Bloomberg. That’s compared with net foreign inflow of US$1.8 billion in 2018 and US$1.08 billion in 2017.
Less than 10 securities firms have so far registered to issue covered warrants. Twenty-six stocks can be used as underlying equities for covered warrants, according to the Ho Chi Minh City bourse, including Refrigeration Electrical Engineering, SSI Securities, FPT, Masan Group, Mobile World Investment and Military Bank.