Traders watch live stock quotes at the Ho Chi Minh Stock Exchange. (Photo: bizlive.vn) HCM City (VNS/VNA) - Vietnamneeds effective changes and reforms to attract more foreign portfolioinvestment, Andy Ho, chief investment officer of investment fund VinaCapital,has said.
The country had an opportunityto attract inflows into stocks, bonds, private equity, and venture capital, hesaid.
The pandemic had hit a lot ofeconomies, and central banks around the world were likely to print 6 trillionUSD worth of money for so-called “quantitative easing” programmes to supporttheir economies.
“And some of that money will inevitablyleak out of developed markets and into frontier and emerging markets in searchof higher investment returns. How do we get some of this money into Vietnam inthe form of foreign indirect investment?”
Andy Ho believed that investorsin developed markets were still very attracted to Vietnam because it “providesreturns that are not available to them in their countries”.
“In their countries, bonds aretrading at negative interest rates, term deposits interest rates are negativeand dividend yields are coming down to 1-2 percent.
“Therefore, they look at placeslike Vietnam where we have dividend yields of 3-4 percent, bond yields of 3-4 percentand term deposits interest rates of 6-7 percent. So the returns in Vietnam aretremendous.”
Vietnam had a very stablepolitical and economic environment and forex market, and half its populationwas under 35 with rising incomes and purchasing power.
For years, Vietnam had been anattractive destination for foreign investors who were enamoured of its growthprospects and other factors.
But more reforms were needed tobecome more attractive.
Foreign investors constantlylamented about the limited number of large, high-quality, high-growth companiesfor them to invest in.
To solve this problem, theGovernment needs to equitise more of the country’s premier companies, such asthe telecommunications companies (Viettel, Mobifone), Electricity Vietnam, andPetroVietnam.
Furthermore, the country'sstock market was dominated by banking, real estate and consumer stocks thataccounted for about 70 percent of the market cap, whereas foreign investorswere typically interested in diversifying their holdings to a wide range ofsectors.
Besides, the biggest “marketaccess” issue that foreign investors were unhappy with in Vietnam was foreignownership limits (FOL).
The FOL law was partlyliberalised in 2015, but only 82 companies (out of 1,700 listed companies) hadactually raised their FOLs, an embarrassingly small number and a major red flagto foreign investors considering investing in Viêt Nam’s stock market.
There were currently 30Vietnamese stocks that had reached full FOL, meaning there were no moreshares available for foreign investors to buy.
If a foreign investor wanted tobuy shares in one of those companies, they had to buy from another foreigner ata price typically 7-15 percent above the market price.
This created a problem in thatthe new foreign investor then suffered a 7-15 percent mark-to-market loss onthe investment because there was no way of verifying the foreign premium thatthe investor had paid to buy the stock.
The solution to this problemwould be for Vietnam to implement a “foreign board” on which transactionsbetween foreign investors were recognised.
The country was stillclassified as a “frontier market” by MSCI and other stock market indexcompanies, and needed an urgent upgrade to the "emerging market (EM)".
“The amount of investment fundsin the world that is benchmarked against the MSCI-EM index is over 100 timesthat linked to the MSCI-Frontier index, an upgrade to the MSCI-EM index wouldprobably push Vietnam’s stock market up by at least 50 percent based on theexperience of other countries that were upgraded in the past.”
The Government should slashcorporate income taxes for the next six to 12 months and lower bank depositrates to encourage local investors to pour money into the stock market.
Vietnam’s leading stockbrokersshould organise investment conferences abroad to encourage foreign investmentinflows.
Besides Government bonds,investors also preferred other bonds that were liquid or listed. It should berelatively easy to attract foreign money into Vietnam's nascent corporate bondmarket if companies took the steps necessary to secure credit ratings frominternational agencies.
“Vietnam’s effective handlingof the COVID-19 outbreak to date has been based on quick and decisive action.We view this as an opportunity to apply those same qualities to resolving somelongstanding issues which could play a key role in helping Vietnam’s economygrow in the aftermath of the pandemic.”/.
VNA
