ETF Monitor – How new rules will change the VN DIAMOND

• The Ho Chi Minh Stock Exchange (HOSE) has made revision on VN DIAMOND index criteria of listing period, market capitalization, liquidity and foreign ownership limit which will be effective since this Oct 2021.
• We estimate that CTD and TCM may be excluded from VNDiamond index due to this index rule change and weight of EIB, VIB, MWG and PNJ will likely be reduced due to their low liquidity ratio.

VN DIAMOND is the largest index in term of fund-tracking NAV 
VNDiamond ETF, tracks on VN Diamond index, has recorded an impressive growth of 149.1% ytd in net asset value (NAV) to US$573mn, to the largest ETF so far. Besides, VN Diamond index has surged 35.9% ytd, outperforming than that of VN Index (10.7%) and VN30 Index (25.9%).

How the new rules will change the securities basket of VN DIAMOND index? 
The Ho Chi Minh Stock Exchange (HOSE) has announced some changes in VNDiamond index rule on 15 Jun 2021 and is expected to take effect in Oct 2021 review period. In our view, the new rules will tighten some criteria of listing time, capitalization, liquidity and foreign ownership limit in order to enhance the quality of index.
According to our estimation basing on new rules, some stocks will be affected by new rules as following:
– New rule requires eligible stock of VNDiamond must have freefloat adjusted market capitalization larger than VND2,000bn, this mean CTD and TCM may be excluded from VNDiamond index if they cannot maintain freefloat adjusted market capitalization greater than VND2,000bn in the next review period.
– New rule applies liquidity ratio into index calculation, this mean stocks with lower liquidity ratio will be reduced its weight in VNDiamond index. Based on data in Jun 2021, the weight of EIB, VIB, MWG and PNJ will likely be reduced due to their current low liquidity ratio.
– New rule also tightens the VNDiamond’s FOL ratio screen, leads to stocks with foreign ownership limit set by company will have less chance to enter VNDiamond. For example, SHB and BVB are planning to lower their foreign room limit to 10% and 5% respectively and targeted to move to HOSE in future. Even though these stocks always maintain full room, they will also not be eligible to enter VNDiamond.

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