Foreign Indirect Investment: A Priority Capital Source

 

The FII capital source previously was limited, but skyrocketed as the Vietnamese stock market developed and Vietnam became a full member of the WTO. According to a preliminary estimation, FII capital has exceeded US$4 billion, accounting for nearly 30 per cent of the market capitalisation of Vietnamese stock market.

 

This is an important source of capital, not only contributing a large volume of capital for the economy, but also having many effects on the economy. FII investors also have a direct and strong effect on Vietnam’s emerging securities market. The development of Hanoi Securities Trading Centre (HASTC) and Ho Chi Minh City Securities Trading Centre (HSTC) is a clear evidence for this phenomenon.

 

Many experts forecast the Vietnamese stock indexes would fall to much lower levels. However, their predictions were based on short-termed characteristics of FII capital source (come early, go soon, as happened in Thailand) without paying attention to Vietnamese typical elements. The economic growth of Vietnam is quite high and continuous. In the first quarter this year, GDP growth was 7.7 per cent, higher than in many previous first quarters. Foreign direct investment (FDI) capital into Vietnam soared in addition to mounting inflows of other foreign currencies like overseas remittances, salaries of Vietnamese workers abroad, and spending by international visitors. The equitisation pace is sped up and many big investors have joined the stock market. An enormous amount of idle cash is ready to inject in the “hot” investment channels if they are profitable. Therefore, FII investors are awaiting new big investors on the one hand, and waiting for higher prices of stocks to sell and lower prices to buy on the other. Hence, the downtrend of the stock indexes will be slowed. Additionally, many experts thought the State would not implement administrative measures to manage FII capital, but encourage the presence of this capital source for a long period of time. Thus, the Vietnamese stock market in general and the presence of FII investors in particular are comprehensively controlled and developed.

 

Apart from stimulating and controlling stock indexes, the FII capital source is heating up the real estate market after several years of “freezing”.

 

Nonetheless, the FII capital source is short-term; hence, Vietnam should encourage the presence of this source on the one hand and carefully supervise, introduce policies to encourage long-term investment, and avoid measures negatively impacting investors’ confidence. The Government is supervising and instructing relevant bodies to carry out these targets.
P.V