Local stocks draw in foreign capital

The global economy has experienced various headwinds in recent times, prompting investors to flee emerging markets. How do you think this will affect Vietnam’s appeal?

As you know, the global economic downturn was so severe that a slew of large central banks such as the Bank of England, the Bank of Japan, and the European Central Bank have recently launched stimulus programmes to ramp up growth. Fast-growing emerging markets such as China are also slowing down. Worried investors around the world are thus withdrawing from riskier emerging markets, and unfortunately, I predict that this trend will not end this year.

As part of the group of emerging and frontier markets, Vietnam is of course affected by this large-scale capital flight. I think that there won’t be any drastic increase in foreign capital into the Vietnamese market – at least not in 2016.

However, it should be noted that in the ASEAN region, Vietnam remains a bright spot for global investors. In 2015, neighbouring countries such as Malaysia and Indonesia were hit hard by low oil prices and massive currency devaluation. Vietnam, on the other hand, held its currency relatively stable and showed signs of economic growth, as displayed through last year’s GDP expansion of 6.68 per cent.

As a result – and as the least-affected economy in the ASEAN region – I believe Vietnam still has a certain level of attractiveness to foreign investors in 2016.

What sectors in Vietnam do overseas investors show the strongest interest in?

Undoubtedly, consumer and consumer-related sectors such as logistics are magnets to foreign investors. They see that Vietnam has a young population of 90 million, a rising middle class, and greater disposable income, all of which will spur the growth of consumer goods. The classic example is the diary giant Vinamilk, which has great corporate governance and a dominant market share in Vietnam.

Real estate stocks, on the other hand, have lost their appeal since the industry tends to have cyclical downturns every three or four years and risks of a housing bubble are quite high. Meanwhile, bank stocks have become too expensive, with high price-over-earnings and price-over-book-value ratios. Thus, foreign investors shy away from bank stocks, even though they praise the performance of leading Vietnamese banks such as Vietcombank or Vietinbank.

Vietnam has recently introduced new laws to lure foreign capital into the domestic stock market. Positive results, however, have yet to be seen. What do you think is the reason for this, apart from the global capital flight?

Vietnam has indeed announced lots of progressive laws, such as Decree 60/2015/ND-CP, which eased the foreign ownership limit at Vietnamese listed firms. However, the problem is that the implementation process of these laws is too slow. For example, so far there are only a handful of Vietnamese firms that have lifted their foreign cap.

Another issue is the low level of openness that many Vietnamese listed firms show to foreign investors. Investor relations (IR) remain inadequate, corporate governance lacks transparency, and most importantly, company information and financial reports aren’t released in English. Investors won’t pour capital into Vietnam if they are kept in the dark like that.

The third problem is the lack of available products in the Vietnamese stock market. Like I said above, hopefully, if Decree 60 is implemented in full force, this problem will be partly solved. I suggest that new products such as non-voting shares or non-voting depository receipts be introduced in Vietnam, as they will attract a fair share of financial investors from overseas.

Currency issues, meanwhile, are not really significant as most investors already foresee devaluation risks when investing in emerging markets. In my opinion, investors won’t mind if the VND depreciates by only 1 or 2 per cent this year. Currency will only matter if the VND goes down by 10 per cent or more.

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