Small, medium firms attract foreign investors

Monday, Feb 29, 2016 08:04

Interestingly, most of them are small- or mid-cap companies. — Illustrative Image


Since early February the ASEAN Deep Value Fund has been acquiring more shares of Hong Ha Viet Nam Joint Stock Company (PHH) and Thanh Nam Investment and Construction Joint Stock Company (CSC). It now owns 10.9 per cent and 13.9 per cent of the businesses.

Also during this period America LLC increased its holdings in Ha Dong Urban Environment Joint Stock Company (MTH) and PetroVietnam Power Service Joint Stock Company (PPS) to 5.9 per cent and 7.1 per cent respectively by buying steadily.

Meanwhile, Cambodia-based Calavi International Investment owns 22 per cent of VECO1 Electricity Construction Joint Stock Company (VE1).

FCN PYN Elite Fund (Non-Ucits) recently bought 287,860 shares of FECON to increase its holding in this company from 6.42 per cent to 7.05 per cent.

Andbanc Investments SIF has registered to buy 700,000 shares of Viet Nam Fumigation Joint Stock Company (VFG) between February 19 and March 19. If the deal is successful, the fund will own 3.98 per cent of VFG.

Interestingly, most of them are small- or mid-cap companies.

Analysts say foreign funds have been in a race to buy small- and mid-cap stocks since mid-2015 when many such shares were more volatile and liquid than many large-cap stocks.

Explaining the trend, securities analysts say foreign investors usually prefer stocks that have good potential rather than just large market caps.

Most of the businesses they have recently bought into have good business prospects.

Many small- and mid-sized stocks saw their prices rise by 50-150 per cent last year.

PHH, for instance rose 2.5 times between March 31 and July, and VE1 by 57 per cent.

Some analysts say small-cap stocks are often investors' favourites especially when the big caps like banks and property firms become less attractive and when there is little macro information to move the market.

Others say small- and mid-cap stocks are attractive to foreign investors because they are likely to have more opportunities to develop in future.

This is because many free trade agreements, specially the TPP, have already been signed by Viet Nam, and this will help speed up reform making many domestic firms more capable of competing when the competition arrives.

They also say large caps have become less attractive to foreign investors since many are grappling with problems like bad debts in case of banks and a resource crunch in case of others.

These problems are expected to worsen in future because the State Bank of Viet Nam plans to tighten lending to the real estate sector to preclude bad debts and check the huge credit flows into the property sector.

Health insurers

Last year the Ministry of Finance issued a decree setting new fees for 1,887 hospital services, including check-ups, beds, and surgery.

From March 1 nearly 1,900 different services and products at public hospitals will become around 30 per cent more expensive.

The new tariff regime will see patients pay for several things that were earlier subsidised by the Government — like power and water, maintenance of equipment and waste treatment facilities, and training and research.

The ministry's decision is expected to benefit health insurance firms.

Insurance sector insiders said awareness of the importance of buying insurance, particularly to cover health, has improved significantly in recent years.

A spokesperson for a non-life insurance firm in HCM City said in 2015 his company's health insurance turnover rose 37 per cent from the previous year, and would continue to increase this year, especially with the new hospital rates.

Health insurance has for several years been one of the top selling products for non-life-insurance, and even life-insurance, firms.

Analysts expect the sharp increase in fees for 1,900 health services to encourage more people to buy health insurance.

To tap the opportunity, insurance firms plan to launch a clutch of new health products, including protection against accidents and injury and critical illness.

Besides, many insurance companies have established close ties with major hospitals so that they would accept their insurance cards.

Analysts say health insurance is always the most profitable segment for insurance firms, who focus their resources on fully exploiting this.

But they say insurance providers should co-operate with hospitals to reduce administrative procedures for insurance beneficiaries.

If they do this there could well be more takers for health insurance, they add.

Cash payments

According to the Viet Nam E-Commerce and Information Technology Agency, though the country's e-commerce market has seen significant growth, the habit of using cash remains overwhelmingly popular, accounting for 65 per cent of online transactions.

In fact, some e-commerce firms said the number of customers opting for "cash on delivery (COD)" accounts for 90 per cent, with few buyers using credit cards.

It is this habit of consumers that has hampered the growth of e-commerce, especially e-retailers, and not the lack of online payment facilities, as many experts claim.

With more than 120 million mobile subscriptions and more than 40 million internet users in Viet Nam, electronic transactions have a lot of potential.

Besides, the number of ATM cards has increased relentlessly as more and more companies force their employees to collect their wages using ATM cards as desired by the Government.

The reluctance to use plastic forces many e-commerce players to keep tracking payments made in cash or by cheque and bank transfers at the desk instead of developing applications for online payments. This is a unique trend that runs contrary to what is happening in other countries.

Consequently, e-commerce firms accept higher operating costs because they have to pay delivery companies a considerable amount since they help them collect money from customers in addition to delivery.

The habit also has an effect on sellers' turnover since people paying cash are always more reluctant to part with their money than those paying by card. The product exchange/return rate is also higher in case of cash payments.

Exchange rate volatility

According to MB Securities Company (MBS), in spite of the dong strengthening against the dollar since Tet in early February the demand has remained steady.

The company predicts that in the short term, the pressure on the dong to weaken will not be so high because the greenback has stopped rising after the US deferred a hike in interest rates, and demand for the dollar in Viet Nam eases at the beginning of the year.

Analysts however said it would be prudent to remain wary. The global financial and forex markets are in a bit of a turmoil as Europe and Japan continue to apply loose monetary policies, the US has finally begun to increase interest rates, and the Chinese economy is slowing down, meaning the country could continue to loosen monetary policies by launching economic stimulus packages.

Viet Nam's domestic consumption is recovering rather strongly and could exacerbate the country's trade deficit this year. The exchange rates may also be affected by a possible decrease in foreign portfolio investment due to the slow equitisation of State-owned enterprises, particularly major ones. — VNS

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