Hanoi (VNA)🔯 - HSBC’s latest report has highlighted Vietnam's potential to be upgraded to an emerging market this year, with plans to expand its capital-raising channels and diversify domestic investors.

Plenty of room for expansion

In the HSBC Global Research's latest report “Vietnam at a Glance - Let’s Talk Capital,” the bank’s experts stressed that when it comes to investment in Vietnam, the emerging capital market cannot be overlooked. In fact, Vietnam’s stock market was the best-performing in Southeast Asia in 2024. However, recent quarters have seen a decline in foreign investment flows. Although largely driven by macroeconomic factors, this trend raises an important question: Are there barriers hindering foreign investors from entering the Vietnamese stock market? Indeed, significant challenges persist, such as barriers to trading, infrastructure limitations, and a lack of transparency and corporate disclosures, HSBC noted.

But changes are underway. Effective in November 2024, Vietnam scrapped the pre-funding requirement for stock transactions. This clears a significant criterion to upgrade its designation from a frontier market to an emerging, potentially later this year. The country has been on the watchlist since 2018. If implemented, FTSE Russell, a major index provider, estimates that the status upgrade could bring foreign investment inflows of 6 billion USD or over 1% of GDP into the country. Such focus is particularly significant for Vietnam, which has lagged ASEAN peers in terms of stock market development. In contrast, bank lending has grown substantially relative to the size of its economy, indicating that credit primarily supported the high growth trend observed over the years. However, a large dependency on credit can lead to amplifying economic adjustments in an adverse manner, such as when borrowing costs rose in late 2022. When the economy experienced acute inflation shortly after the pandemic and the State Bank of Vietnam (SBV) responded accordingly by tightening monetary policy, credit growth slowed sharply as pressures flowed across many areas in the domestic sector, particularly in banking and real estate. In this context, developments to improve capital markets should not only be seen as catching up to market peers but also in terms of diversifying and expanding capital mobilisation channels to build financial resilience. The bank also underlined the importance of improved transparency and disclosures. Alongside attracting foreign investors to the capital markets, expanding and diversifying the domestic investor base will be crucial for Vietnam to meet its long-term targets: a stock market capitalisation of 120% and corporate bond debt reaching 25% of GDP by 2030.

Vietnam still has significant potential to increase the presence of institutional investors in both markets. As such, the stock market status upgrade is just the first step in attracting these investors, HSBC concluded.

Facing highest tariff risks in ASEAN

HSBC’s report highlights Vietnam's trade performance in January 2025, which began with a steady pace despite disruptions caused by the early Lunar New Year. The extended holiday, lasting nine days, impacted data analysis as many workers returned to their hometowns. Retail sales rose 10% year-on-year, but consumer trends show there’s still room for recovery, with sales 8% below their potential. After adjusting for the holiday, exports decreased 4.3% year-on-year, in line with expectations. A key trend is the decline in mobile phone exports, while computer electronics drove growth. Imports fell 2.6%, leading to a trade surplus of over 3 billion USD, higher than 2024's average. The tourism industry sets a new record in the first month of 2025 when it welcomes more than two million international visitors. (Photo: VietnamPlus) The report also underscores Vietnam’s high tariff risks, particularly due to its large trade surplus with the US, which poses challenges for trade prospects. Despite the uncertain landscape, the US has delayed tariff impositions on Canada and Mexico, suggesting the issue may be re-negotiated. While Vietnam’s trade situation is impacted by tariffs, the country’s emergence as a global manufacturing hub is driven by its improving fundamentals, it commented. In contrast to trade challenges, Vietnam’s tourism sector has thrived, with over two million international visitors in January, a 40% increase from last year. The rise in tourism, particularly from mainland China, has helped mitigate concerns about inflation, which grew by 3.6% year-on-year. However, HSBC analysts believe the inflation is likely to be temporary./.