Flows are washing in

Attractive valuations are continuing to attract hot money

State Bank governor Nguyen Van Giau recently said that instead of net outflows of around $500-600 million in 2009, net foreign portfolio investment inflows have reached $715 million during the year to date.

“These inflows increased dramatically in the last two months and expected to rise further in December,” Giau told reporters in late November.

The US dollar to local currency rate peaked at VND21,600 in early December, or 10.7 per cent higher than official rate of VND19,500. The rate, however, fell to around VND21,050 last week and market observers believed the rising inflows were responsible.

In a related development, foreign investors have been net buyers of Vietnamese equities worth nearly $600 million on Ho Chi Minh Stock Exchange (HoSE) alone during the year to date, bringing the total net buying to 14 consecutive months, according to HoSE statistics.

Market analysts said in 2011, hot money would continue to find emerging Asia markets and Vietnam would attract a part of this thanks to its attractive valuations. Vietnam’s market is traded at around 10.3 times, compared to regional peers Indonesia (20.7), Malaysia (18.1), Philippines (14.9) and Thailand (15.5).

“Foreign portfolio capital will heavily flow into Vietnam over the next six to 18 months,” added Andy Ho,  chief executive officer of VinaCapital. A recent government report on socio-economic development in 2010 and 2011 feared that there was a possible asset bubble emerging on local stock markets due to hot foreign money inflows.

As rates were high in Vietnam, compared to nearly zero or low rates in global markets, they would promote strong short-term inflows, causing asset bubble risks, said the report.

Around $2 billion in “carry trade” foreign investment capital has been poured into Vietnam so far this year and this sum has not flown out as the local rates remain highly attractive, according to the National Committee for Financial Supervision’s statistics.

“In 2011, around $1.5 billion worth of foreign portfolio investment capital is expected to flow into Vietnam, the same as 2010, with majority being private equity deals, not listed stocks,” said Vo Tri Thanh, Central Institute for Economic Management (CIEM) deputy head.

A senior State Securities Commission (SSC) official  said that year to date the new foreign portfolio investment inflows was not remarkable. “They [foreign investors] have just looked, not yet invested,” said the SSC official.

Foreign portfolio investment inflows into Vietnam were $1.31 billion in 2006 and surged to $6.24 billion in 2007, then the outflows were $578 million in 2008 and estimated at more than $500 million in 2009, according to unofficial sources.