Stock market gains Taiwanese touch

Vietnam’s stock market, unlike neighbours such as Thailand and the Philippines, is continuing to attract cash from overseas

Yuanta Securities Vietnam has announced its plan to raise its charter capital from VND700 billion ($30.43 million) to VND1 trillion ($43.47 million), in order to qualify for a string of financial services such as covered warrants and derivatives.

According to Yuanta representatives, this capital injection showcased its commitment to Vietnam’s capital market, helping it become a bridge connecting Taiwanese and Vietnamese investors. The securities firm hopes to bring in even more money in the near future, boosting its capital to VND1.5 trillion ($64.6 million). New branches and offices around Vietnam are also planned.

Yuanta Securities Vietnam is a merged entity between Vietnam’s De Nhat Securities and Taiwan’s Yuanta Securities. In late 2017, Yuanta Securities made its first entry into Vietnam by buying out De Nhat, a small and little-known brokerage firm. A merger is an optimal route for Yuanta Securities since Vietnam stopped issuing new business certificates for 100 per cent foreign-owned brokerages. The Taiwanese firm also benefits from De Nhat’s existing human resources and branch networks.

Following the Yuanta-De Nhat merger, Le Minh Tam, CEO of De Nhat Securities, was appointed chairman of Yuanta Securities Vietnam. According to Tam, Taiwan is not only a strong direct investor in Vietnam but also a significant player in the capital market. Vietnam’s stock market is similar to Taiwan’s 20 or 30 years ago, characterised by a dominance of retail trading and individual investors.

“We don’t have official statistics on Taiwan’s indirect investment in Vietnam yet, but I’m sure the numbers are growing,” said Tam. “While nearby markets such as Thailand or the Philippines saw an outflow of capital, Vietnam’s stock market continues to attract foreign money. Foreign brokerages like us aspire to provide the best services for the booming inflows of Taiwanese capital into Vietnam.”

Other reasons that propel Taiwanese investors to Vietnam include a stable economy and steady foreign exchange rates. Lending rates at Taiwanese banks are at only 1 or 2 per cent, making it easier and cheaper for businesses and investors to borrow and invest in Vietnam. Opportunities for long-term Taiwanese investors include the equitisation process of Vietnam’s state-owned enterprises, as well as state divestments and private equity. Those with a shorter investment timeline may also choose purely financial tools such as derivatives.

Striking similarities

Experts pointed out that Taiwanese investors are likely to feel at home in the Vietnamese stock market due to similarities between the two, and increasing business ties in various industries. When building new financial products, Vietnam’s regulators usually take a leaf out of the Taiwanese book. For example, covered warrants (CWs), which officially came to Vietnam’s capital market last month, were modelled after the Taiwanese edition.

Established in 1997, Taiwan’s CW market is the second-biggest in Asia-Pacific and sixth-biggest in the world, according to the World Federation of Exchanges. At least 24,500 CW products are traded in Taiwan daily. The product is a high-risk financial instrument with high margin levels, making risk management a very important task for Taiwan’s market regulators. These are important lessons for Vietnam to follow, according to Luu Nguyen Duan, a broker from Phu Hung Securities Corporation.

“Taiwan’s experience with CWs shows that this product is suitable for short-term trading, and many investors sell CWs before their maturity date. Investors should also have sufficient data about the CW issuer to make the most informed decision,” said Duan.

Similar to the Taiwanese market, CWs in Vietnam have no limit on foreign investment, and their highly leveraged nature is suitable for short-term traders and retail investors, which take up 97 per cent of Vietnam’s capital market.

Other lessons that Vietnam can take from Taiwan’s capital market is preventing a bubble. According to experts, back in 1988, Taiwan went through a boom-and-bust period that shut down the stock market for three weeks. This is very similar to Vietnam in the 2007 era when individual investors borrowed large amounts of money to speculate on the new stock market and defaulted on their loan as the bubble burst.

More accessibility needed

Although they are optimistic about Vietnam’s capital market, Taiwanese investors have also been vocal about what else needs to be done to accommodate foreign inflows. The most imp ortant area that needs improvement, according to Taiwanese investors, is information disclosure. They hope that Vietnamese companies will release their data or reports in English and Vietnamese at the same time, ensuring an equal playing field for domestic and foreign investors.

Chen Chia Ken, general director of Phu Hung Securities, said, “Many Taiwanese investors face the challenge of little information disclosure in English. They don’t have enough details to have a well-rounded evaluation of Vietnamese companies.”

Back in 2015, Phu Hung Securities Vietnam, backed by Taiwanese investors, bought the struggling An Thanh Securities. Phu Hung Securities has so far injected new capital multiple times.

As of now, major Vietnamese listed companies have been active in providing English information to investors, but this is voluntarily, and no legal requirement has been set on the matter. This is also one complaint from Morgan Stanley Capital International, the market evaluator that still has yet to put Vietnam on the emerging market list.

Taiwanese investors, similar to their peers from other economies, also hope that Vietnam can relax the foreign ownership limit (FOL) at listed companies. The common threshold is 49 per cent for the majority of stocks, and 30 per cent for financial institutions. This issue has been a heated debate in Vietnam, despite regulations such as Decree No.60/2015/ND-CP dated June 26, 2015 on implementing the Law on Securities that promises to abolish the cap. The long list of conditional, or restricted, sectors also makes Taiwanese investors wary.

Vietnam’s amended version of the Law on Securities, expected to be passed by the National Assembly this November, addresses this issue by setting the automatic FOL at zero for listed companies (as opposed to the current cap of 49 per cent). There are also suggestions for new financial products that can circumvent the cap, such as non-voting depository receipts or non-voting shares.

“Our Taiwanese clients believe that Vietnam should ease its FOL because this will create more opportunity to collaborate between the two sides. There should also be a new legal framework to allow Taiwanese companies to list in Vietnam,” said Ken of Phu Hung Securities.