Stronger flows on the horizon

Richard Irwin - Partner, PwC Vietnam

I have seen continuously growing foreign investor interest in Vietnam in recent years. The longer, established reasons for this still stand – attractive demographics, emerging middle class, alternative location next to China for multi-national corporations’ manufacturing bases, and plentiful labour supply. But recently we have also seen foreign investors attracted by the equitisation of some large state-owned enterprises, the relaxation of limits on foreign ownership at listed companies and an increasing interest in green energy. We also generally see Vietnamese business owners as being more open to foreign investment and co-operation than in some other countries in the region.

However, the presence of investors from the EU and the US remains limited as they are still concerned with the poor physical infrastructure in Vietnam. Vague regulations and inconsistent enforcement continue to cause problems to existing investors, and these ongoing problems can deter new investors. We also see a generally low lack of awareness in Vietnam in some of these territories. Overall, Vietnam has a very compelling story to tell to investors from these countries, but more needs to be done to promote this message.

Vietnam’s still weak physical infrastructure needs improvements and this could be a key target for foreign investment. At the same time, the regulatory and licensing environment needs to be improved in order to really tap into foreign investor interest in this sector – as evidenced by the paucity of public-private partnership projects that have got off the ground to date. The banking sector and e-commerce are also areas where foreign investment could pay off for both sides. However, manufacturing still clearly has potential for more growth, particularly in the value added sectors, and in import substitution so that Vietnam can build up a domestic supply chain, instead of importing the components and materials for its exports.

Mike Lynch - Managing director, co-head of Institutional Brokerage, SSI Securities Corporation

Joining the delegation of the finance and securities industry to promote investment in Vietnam, SSI Securities Corporation (SSI) would like to contact many investors to inform them about the event – and invite them to attend. These are institutional investors with global investment mandates based in England and Scotland.

We have many investing clients in the UK – and many more that are not yet engaged to trade in Vietnam. The message that they would want to see and hear is that Vietnam is working with global best practice exchanges (like the London Stock Exchange) to bring the Vietnamese capital markets up to global standards.

Many investors from the UK are interested in finding a well-balanced risk-return way to invest in Vietnam. They are interested in infrastructure (roads, bridges, water, and utilities) and financial system investments – among others.

They need to be convinced that Vietnam has foreign-investor-friendly policies in place – including corporate governance – to make it a market that is worth investing in. Free market policies and transparency are of key importance. It is also important to have investor protection and compliance at all levels of the system to help eliminate fraud.

It is known that in investment activities, the British are very interested in the issue of social responsibility in addition to the financial profit factor. This falls into the areas of transparency, free markets, and compliance. Most global investors care about social responsibility to a degree because they must answer to their investors. It is far easier to invest in known and responsible companies than the unknown. No one wants to be caught holding interest in a company that behaves badly.

Free markets should give the advantage to companies that act well against those who cheat and behave badly. Vietnam should prioritise improved corporate governance and establish good laws for things like labour practices and environmental practices to alleviate concerns.

In terms of calling for capital or setting up an intermediary, and creating a bridge to attract investment from the UK into Vietnam, I think that any move to make it easier for global investors in Vietnam will be seen positively. This could include off-shore exchange-traded funds (ETFs) or asset management products that treat foreigners and locals the same way and feel like products they are all used to. This could include sector ETFs (banks, utilities, and consumer) and ETFs that allow for the purchase of foreign limited (FOL) shares at local prices. Vietnam should enable global-standard trading practices that include short-selling, day-trading, and margin lending to foreigners. Perhaps most importantly, Vietnam needs to implement a way for foreigners to trade FOL shares with a price that can be marked-to-market on a daily basis. The solution for this FOL issue can be found in Thailand – and the Ho Chi Minh City Stock Exchange team is working on this. If we could communicate a clear decision to go in that direction to the foreign investor base – with a deadline in the near term – it could help attract many foreign investors.

Nguyen Thanh Long - chairman, Hanoi Stock Exchange

As part of this year’s Investment Promotion Forum in London, the Hanoi and Ho Chi Minh stock exchanges will sign MoUs with the London Stock Exchange Group. What areas of co-operation do you hope to see between the stock bourses?

I think it’s important, first of all, to understand why we want to partner with the London Stock Exchange Group (LSEG).

The LSEG was set up in 1698 and is now the world’s seventh-largest stock market with more than $3.7 trillion worth of assets. LSEG is a global provider of equity markets services, including risk management tools. The group is also a pioneer in ground-breaking solutions for the financial industry, with tech innovations that can be used at 40 leading organisations and stock exchange around the world. FTSE Russell, a member of LSEG, is a well-known provider of market indexes and data solutions.

LSEG has four main trading platforms, including the London Stock Exchange (LSE), Borsa Italiana (Italian Stock Exchange), Turquoise (the European trading platform), and a fixed-income trading platform. Through these platforms, the LSEG welcomes market participants from all over the world who want to access the European capital market. The LSEG has an important economic and social role because firms in the UK and Europe can find the funding they need for their business activities.

LSEG has services for the vast majority of securities around the world, from equities, bonds to exchange-traded funds and derivatives. The AIM market is one offer from the LSEG for small- to medium-sized companies and startups.

LSEG is also a successful developer in derivatives to provide risk management services for developing countries, especially Russia and Italia. This includes futures and options on the FTSE. The government bond trading system in the UK is quite similar to the HNX, because the HNX is modelled after the whole-sale market of the LSEG. The HNX’s derivatives market is also developed by GMEX, which counts LSEG as an investor.

We can see that LSEG offers such a wide variety of market tools, information structures, and development strategies that the HNX can learn from. We hope that this collaboration will fasten the learning process, especially in terms of a stock market for startups, bonds, and derivatives.

Before that, in 2008 the HNX and the LSE have signed an MoU to share market information, train staff members and share experiences, which includes cross-listing. The new MoU this time will be an expanded and upgraded version of that one.

As part of this MoU, we’ll find the right solutions that fit the two countries’ regulations, making it easier for Vietnamese firms to seek foreign funding. The first step is exploring how to list high-quality Vietnamese firms overseas, and developing the debt market in Vietnam. The three sides will exchange information related to the legal framework of listing, trading, corporate governance, and platforms.

Dang Quyet Tien - head of the Corporate Finance department at the Ministry of Finance

At the Investment Promotion Forum in London this time, we want to convey these following messages from Vietnam to investors in Europe and the UK:

First, we want to tell them about our regulatory updates on the equitisation and divestments process at Vietnam’s state-owned enterprises (SOEs). The general direction is to improve the transparency and accessibility of these transactions, following market principles.

Second, Vietnam has a ready supply of SOEs and other financial products for sale to foreign investors.

Third, the Ministry of Finance and the State Securities Commission will always be ready to listen to suggestions and opinions of investors from Europe and the UK, filfulling our role as your trusted companion in Vietnam’s investment and business environment.

This year, we’re announcing the list of equitising SOEs, or upcoming state divestments, which we believe has a lot of interesting names that can capture the attention of European and British investors. We want to emphasise that Vietnam’s government is determined to restructure the SOE segment, push the efficiency level at SOEs and follow market principles, together with developing non-public companies.

Our goal is to minimise the number of SOEs in Vietnam, and increase the amount of listed firms on the stock market. This initiative will force companies to follow international rules on corporate governance, starting with OECD standards.

Some attractive segments that investors might consider include:

1. Energy (Genco 1,2,3 – PV Power – TKV Power, etc...)

2. Mining and natural resources (TKV, Binh Son Refinery, PetroVietnam Camau Fertiliser, Phu My Fertiliser, etc..)

3. Services (VNPT, PV Oil, etc…)

4. Banking and insurance (Bao Minh Insurance, Agribank, etc…)

To make it easier for European and British investors to join in the equitisation and state divestment process at SOEs, we’ve conducted research on the book building method. In our opinion, book building clearly showcases our determination in following market principles and ensuring transparency and accessibility of SOE sales.

We hope that with book building coming up in the future, investors will no more be concerned about the lack of information or time when they decide to invest in Vietnamese SOEs.