Since the new regulations were proposed late last month, VN-Index, the major stock index of Vietnam, rose 9 percent and HNX-Index climbed 3.6 percent. China’s Shanghai Composite Index and even the Philippines’ popular stock index have fallen 5.3 percent and 1.6 percent, respectively, as a year-long rally in Chinese shares suddenly reversed, spooking investors globally.
Vietnam has traditionally kept a tight rein on foreign investment in the country’s stock markets. The ownership-limit changes, expected at the beginning of September, have triggered a shopping spree among local retail investors.
Nguyen Hong Khanh, an office worker in Ho Chi Minh City, says the anticipated change to regulations is already netting him more than two-thirds his annual salary as an office worker if he sold his share holdings.
Individual investors such as Khanh account for around 90 percent of trading volume on the Vietnamese stock markets. Many expect that overseas investors will flood into local markets when the ownership limits are raised as yield-starved funds look to grab a slice of one of the world’s hottest frontier markets.
“Why shouldn’t I buy more shares at this time?” Khanh said. “Once the limit is lifted, foreign investors will pour money in and I can have a chance to cash in.”
Vietnamese stock markets jump after lifting of foreign ownership limits.
Markets were surprised late last month when the Government issued a decree to remove the limit on foreign ownership of Vietnamese companies, except for those firms operating in areas sensitive to national security. The market had previously expected the current 49 percent limit on foreign ownership to be increased only to 60 percent.
The Government has yet to specify details on exactly which companies or sectors will be excluded from the new foreign cap, aside from banks, which will be capped at 30 percent. The changes should take effect from September 1.
Khanh, 39, said he already owned VND1 billion (US$46,000) worth of shares and will keep buying until 80 percent of his disposable income is invested in the stock market. He plans to use some of his gains to pay tuition fees for his daughter in September.
Foreign interest is already rising in Vietnam. In the first six months of the year, foreigners bought more than US$233 million worth of Vietnamese stocks, well above the US$128 million for the whole of 2014.
According to statistics, around 30 companies, which account for about a fifth of the total market capitalisation of the Ho Chi Minh Stock Exchange (HOSE) were trading at or near their foreign ownership limits.
Among them are Vietnam Dairy Products Joint Stock Company (Vinamilk) and Binh Minh Plastics Joint Stock Company, which have risen 2.6 percent and 4.5 percent, respectively, since late last month when the government indicated it would lift the foreign ownership cap.
Louis Nguyen, Chief Executive and Chairman of Saigon Asset Management, said if the Government goes through with plans to lift the foreign ownership cap on stocks like these, it could transform the local market. The reforms could “potentially unlock billions of dollars of room for overseas investors and start to open the floodgates for those looking for exposure to Vietnam.”
At present, there are dozens of smaller companies in Vietnam with capacity for foreign ownership and attractive valuations, but their market capitalisation is too small to make them viable investments for large institutional funds, narrowing the options to the larger firms.
The Government of Vietnam plans to privatise as many as 289 State companies this year to boost the local stock market. But progress so far has been slow with only 61 State enterprises privatised as of June 23, just a fifth of the target for the whole of 2015.
Vietnam remains a difficult place to invest. In order to trade, foreign funds need to be locally registered, which can take months to set up, leaving many investors reliant on specialist funds already established in Vietnam, or looking to gain exposure through indirect investment products such as exchange-traded funds (ETFs).
Local investors are still confident that the government’s stated ambition to open up more to foreign investment will pull in foreign investors, despite the challenges.
“It’s just the beginning for Vietnam’s stock market,” said Khanh. “I would advise my friends and relatives to put their idle money in the market now. It’s a good investment channel,” he said.
Young Intellectual Newspaper
.jpg)
Vietnamese
