Vietnam May Allow Investors to Short Stocks for the First Time

(Bloomberg) -- Investors in Vietnam’s equity market may be allowed for the first time to short stocks under a proposal put forward by the country’s Ministry of Finance.

Shares may be borrowed from brokers under contracts that cover matters including collateral, lending rates, tenure and dispute resolutions, according to a draft of the measure posted on the ministry’s website dated Aug. 24.

“It’s another step toward the Vietnam stock market moving closer to international practices,” Hung Pham, an analyst at SSI Securities Inc. wrote in a note to investors.

Vietnam has been trying to gain an MSCI Inc. upgrade to emerging-market status from frontier level. Short selling remains illegal in the Southeast Asian nation, which first proposed easing restrictions in 2014 without pursuing the matter. The benchmark VN Index of Vietnamese stocks has fallen about 9% so far this year.

Under the proposal, covered short selling would be allowed, with investors required to close positions afterwards and buy the exact same amount of stocks to return to lenders.

The ministry is seeking comment from market participants on the plan. Vietnam’s stock exchanges will later decide upon a list of eligible equities based on pre-defined criteria on market capitalization, earnings performance and liquidity set by the State Securities Commission.

“While we recognize that different markets are at different stages of development, we believe that all markets in Asia Pacific can benefit from the adoption of transparent regulatory frameworks that allow for covered short positions and for stocks to be lent and borrowed,” Pan Asia Securities Lending Association, known as PASLA, wrote in an email. “This is an important factor for global investors and index providers, as well as being integral to the development of liquid, robust capital markets that can support economic growth and prosperity.”

This is an important factor for global investors and index providers, as well as being integral to the development of liquid, robust capital markets that can support economic growth and prosperity.”

While no time frame was given, the finance ministry would first have to approve short selling with the regulator subsequently providing guidelines.

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