Foreign investors look for larger foreign ownership

Wednesday, Jan 29, 2014 09:06

The number of foreign investors opening accounts for stock trading in Viet Nam is growing, indicating that Vietnamese equities continue to attract foreign investors.— Photo

By Minh Huong

HA NOI (Biz Hub) — The VN-Index hit a four-year high on January 24, 2014, reaching over 560 points in HCM City, a year-on year increase of 24 per cent.

This follows securities experts seeing more participation from foreign investors, while the possibilities of foreign ownership limit extensions cause caps to rally.

In 2013, a Government draft decision offered possible permission for foreign investors to hold up to 60 per cent in listed firms, as opposed to the current maximum for overseas ownership being 49 per cent. Though there is not yet any official decision from the Government of Viet Nam on the extended percentage for foreign ownership, larger foreign investment in local stocks were recently recorded.

According to Hoang Viet Phuong, Director of the Institutional Research & Investment Advisory in Saigon Securities Inc, one of the leading securities companies in Viet Nam, the possible extension would be the remedy to comfort investors, who remain apprehensive about investing in Vietnam's equity market, given the high number of large caps and blue chips that have reached their maximum foreign ownership limit.

Meanwhile, Cayman Islands-based Asia Frontial Capital, which invested US$ 50 million in Vietnamese listed equities, told Biz Hub that many foreign investors are waiting for the extension. AFC thinks the Vietnamese government is open for further expansion of capital markets, and with an improvement in the economy and surging interest of investors, the market should develop further.

Meanwhile, Phuong said that foreign investors only sought ‘good-quality' companies, therefore domestic companies that aspire to compete for foreign investors' funds would be more motivated to improve corporate governance and investor relations activities.

Also talking positively about the local market, which has been boosted by new products, such as derivatives, open-ended funds, ETF, and REIT, Phuong also worries that the Vietnamese securities laws on foreign ownership limits remain quite limited.

Phuong thinks it is not an appropriate time to compare Vietnam with Thailand or Singapore, as they are in different stages of development and maturity. AFC makes a comparison between the current market of Viet Nam and the early years of Thailand's market, saying that Vietnam is doing quite well and they have little to complain about the local market.

AFC, on the other hand, makes a comparison with countries that are economically at a similar stage, such as Laos, which has been open for 3 years and has 3 companies and Cambodia, which has been open for less than 2 years, with 1 securities firm. Meanwhile, according to the State Securities Commission of Viet Nam, there are 105 securities firms that have opened since the market began in 1995.

According to Phuong, more than 400,000 SMEs inhibit strong inclination for growth, adding that strong corporate governance and investor relations are essential for listed companies to attract more funds from investors.

Meanwhile, AFC thinks many of the small and mid size companies which are state owned provide a healthy return to equity share holders and have sound fundamentals with consistent earnings of growth and dividends over the past 3-5 years.

AFC sees a large valuation of local blue chips, adding that if the public sees value in big caps, they are eager to invest in other stocks, as well.— VNS

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