Foreign investors to sit on the fence

Vietnam’s overwhelmingly positive demographics are hard to ignore for investors

Market analysts forecast that foreign portfolio investment flows in Vietnam’s stock market in 2011 would continue to be affected by exchange rate and inflation concerns.

“Development of the particularly-notes (P-notes) and exchange-traded funds (ETFs) on Vietnam’s stock market will continue this year,” said Pham Thanh Thai Linh, Bao Viet Securities Company’s (BVSC) chief market strategist.

P-notes or ETFs are kind of investment vehicles recently used by foreign investors or foreign hedge funds that are not registered with a market regulator to invest in Vietnamese securities. Normally, Vietnam-based foreign investment banks buy Vietnamese securities and then issue investment certificates to outside investors. Any dividends or capital gains collected from the underlying securities will go back to the investors.

“This investment tool exited Vietnam in 2008 when global crisis broke out. However, once Vietnam’s economy recovers, this tool will return and become a major driving force on Vietnamese stock markets,” said a Ho Chi Minh City Securities Corporation (HSC) analyst.

Allison Lovett, marketing vice president at New York-based asset manager Van Eck Global - manager of the first United States-based Market Vectors Vietnam ETF exposure, said there would be more Vietnam-focused ETFs  as Vietnam’s young demographic and increased integration into the world marketplace would appeal to foreign investors. 

“As Vietnam is fairly under represented in many emerging markets indices and products, we would expect investors to show continued interest in using indexing as an efficient way to customise their international exposure,” said Lovett.

Beside P-notes and ETFs, foreign institutional investors are seeking Vietnamese authorities to issue depository receipts (DP), a new investment kind for foreign investors unnecessary to be in Vietnam.

Lovett said ETFs might be a challenge to foreign investment fund managers as global investors preferred  ETFs to issuing fund certificates or others to invest in new emerging markets.

“Because of their convenience and low-cost structure, ETFs appeal to a spectrum of investors, from institutional money managers to individual retail clients,” Lovett said.

She added that as global investors become more tactical, they are increasingly looking to ETFs as a convenient means to customise their international exposure. 

“That could be risky as foreign investors might turn sellers quickly, causing more volatile,” said Nguyen Duc Tuan, StoxPlus’s market analyst.