More foreign investment will help securities

Wednesday, Jul 08, 2015 08:01

The positive effects the document, Decree 60/2015, would have on the national market include increasing liquidity and a narrower liquidity discount between Viet Nam and other regional markets, according to Ho. — Photo vinacorp

HA NOI (Biz Hub) — A decree issued last month that allows foreign investors to raise their ownership in Vietnamese companies will help Viet Nam's securities market, said Andy Ho, Chief Investment Officer of VinaCapital.

Viet Nam achieved a sustainable growth rate of 6 per cent, and the new decree would allow foreign investors to participate more in this recent market growth, quoted Ho as saying.

"It is a game-changer," he added. "It brings Viet Nam closer to fulfilling its World Trade Organisation (WTO) commitment, and may serve as a catalyst for ascension to Morgan Stanley Capital International (MSCI) Emerging Market Index."

Foreign ownership limits in listed companies used to be a big problem for international investors when they were restricted from market activities. Ho said that in other similar markets, such as South Korea in 1992-98 and Taiwan in 1966-2005, foreigners could invest in more than half of a company's stakes, but their investing power was restricted through non-voting shares.

The positive effects the document, Decree 60/2015, would have on the national market include increasing liquidity and a narrower liquidity discount between Viet Nam and other regional markets, according to Ho. The country has had a liquidity discount in recent years between 25 and 35 per cent compared with other markets.

In fact, after the new decree was issued on June 26, market liquidity has increased sharply during the last eight trading sessions, averaging VND3.35 trillion (US$155 million) per session.

Meanwhile, the VN Index rose by 8.34 per cent to 630.27 points and the HNX Index grew by 4.58 per cent to 89.44 points since the decree was issued.

Secondly, the rise in foreign capital will motivate and speed up the privatisation progress in state-owned enterprises (SOEs). Foreign investors will find more opportunities to invest in SOEs that have been functioning in high-growth sectors such as food and beverages, property and infrastructure through public listings, strategic investors and merger & acquisition (M&A).

Gov't control

However, the Government will maintain its control over some vital sectors such as telecommunications, national defence, banking and airlines. Among these restricted businesses, telecommunications and banking show brighter chances for overseas investors as the Government wants to cut the number of banks by half by 2017. Some state-owned telecommunications corporations such as MobiFone have been privatised recently to improve their business.

Thirdly, Viet Nam will be able to develop a properly functioning stock market to maximise its development potential. The market capitalisation has reached $60 billion with an average trading volume of $100 million per day, while total foreign capitalisation is now just $10.2 billion, equal to 17 per cent of total market capitalisation.

This lack of depth in market capitalisation, along with the market's bias toward local investors and margin lending levels, has created more volatility in the market. The increase in foreign participation is expected to reduce this market volatility.

In addition, the new decree is also expected to help Viet Nam create a market that's open to foreign capital - an important requirement to join the MSCI Emerging Markets, which attracts $1.4 trillion in investment.

"Viet Nam's eventual inclusion could provide an upside of 15 to 20 per cent to investors," Ho said.

Some local companies also provided additional positive comments on the issuance of the decree, including the Bank for Investment and Development of Viet Nam (BIDV).

Tran Bac Ha, chairman of BIDV's Board of Directors, said that in short term, the new decree would help the market increase its liquidity and raise share values as the market responded quickly to changes in business results and market policies.

In addition, the new decree would also have some long-term effects on the securities market, he said. In order to implement the amended Law of Investment and the new decree, the Ministry of Planning and Investment would issue a list of conditional investment sectors and review the regulations related to foreign investment.

The Government would remove the regulations that troubled foreign investors on the market in an attempt to improve Viet Nam's investment environment and draw more direct and indirect foreign investment (FDI and FII) in the securities market, he said.

Secondly, the new decree would help restructure the securities market to establish high-quality securities firms and improve the share qualities through business restructuring, risk investment and M&A conducted by foreign investors, he said.

Foreign investment would affect 28 listed companies that ran out of foreign ownership limits. Then it would affect all listed companies, all unlisted public companies and the joint stock companies that were founded through M&A, he said.

Thirdly, foreign investors would assist state-owned enterprises with their privatisation progress by providing modern technology and administration systems.

However, the decree could also negatively affect the securities market.

Firstly, foreign investors will increase their trading activity, which means current shareholders may provide incorrect and unofficial market information to raise the share values to sell shares to make more profit.

Secondly, if the securities market depends too much on foreign investment, it will collapse when foreign investors withdraw from the market.

To avoid these problems, the Government needs keep a steady eye on capital flow and improve agencies' and the private sector's risk management abilities.

According to the Viet Nam Securities Depository (VSD), after the decree was issued, many foreign investors entered Viet Nam's securities market.

By the end of last month, there were nearly 18,000 eligible foreign investors on Viet Nam's securities market – about 2,300 organisations and 15,300 individuals.

In June, the VSD issued trading codes for 81 foreign investors, including 66 individuals and 15 organisations. — VNS

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