Bonds, Currencies, Emerging Markets, Frontier Markets, Funds / ETFs, Stocks

With Eyes On MSCI Upgrade To EM: Vietnam Stocks, ETF’s May Be Set For Revival As Ownership Limits Lifted

Hanoi Stock Exchange, Vietnam

Hanoi Stock Exchange, Vietnam.

As Vietnam eyes an upgrade from frontier market status to emerging market status by MSCI, the nation has eased curbs on foreign ownership in an effort to boost inflows to the nation’s stocks, Bloomberg reports on Sunday.

Foreign investors can now increase holdings to 100 percent from 49 percent starting in September in “a number” of industries, according to a decree by the Vietnamese government which was published on Friday.

According to the decree, other companies will keep their 49 percent limits, while holdings in sectors governed by separate ownership regulations such as banks will remain at 30 percent.

The foreign ownership restrictions have been “a major hurdle” to developing Vietnam’s capital markets and have deterred away foreign investment, Andy Ho, Chief Investment Officer of Ho Chi Minh City-based VinaCapital, which manages about $1.4 billion in assets, told Bloomberg.

Vietnam’s plan to overhaul its $58 billion market was originally proposed in 2013, however it was delayed in 2014.

Previously, money managers such as Templeton Asset Management and Dragon Capital had complained that they were unable to buy as many equities in Vietnam as they wanted to due to the caps.

According to MSCI, to achieve an emerging market ranking — which would increase the pool of eligible investors for Vietnam — this would require a “significant” openness to foreign ownership and an easing of capital flows, as well as minimum levels of liquidity and market value.

This year, Vietnam’s benchmark VN Index has gained 7.5 percent, which has outperformed the MSCI Frontier Markets Index, which has fallen 5.7 percent, however the U.S.-traded Market Vectors Vietnam ETF ($VNM) has not followed suit of the VN Index as it is down nearly 6.0 percent on the year.

Vietnam’s benchmark gauge trades around 12 times its projected 12 month earnings, versus 9.9 times for the MSCI gauge.

Vietnam Market Vectors Vietnam ETF VNM

Market Vectors Vietnam ETF VNM

As soon as the limits are raised, you will see a rush to buy blue chips,” Patrick Mitchell, head of institutional sales at VinaSecurities in Ho Chi Minh City, told Bloomberg.

So far, in the first five months of 2015, Vietnam has seen a total of $4.3 billion in foreign direct investment (FDI), which is less than 20 percent of the total it is forecasting to see in 2015, according to Bloomberg.

Foreign investors have added a net $156.6 million to Vietnam holdings, as the nation is set for its 10th straight year of inflows, according to Bloomberg.

Since October 2014, Vietnam has been ramping up its efforts to present its case for an upgrade to emerging market status, which the State Securities Commission has had its eyes on.

In November 2014, Vietnam’s National Assembly had originally proposed the revised investment law to improve business climate by creating a clear, open, and transparent environment for investors, in an effort to attract more investment.

Since last year, Vietnam has set out for an ambitious plan to sell a record amount of shares in state-owned companies, which the Finance Ministry reemphasized in March.

In January, Vietnam said that it was intensifying its multi-year efforts to clean up and overhaul its banking system – which has struggled over the years with non-performing loans (NPLs) – by pushing for bank mergers and forcing weaker banks into bankruptcy.

The State Bank of Vietnam, the nation’s Central Bank, said that it was increasing its measures to “drastically” deal with weaker institutions that have no chance of recovery, according to a statement on its official website.

The Central Bank “is putting its utmost efforts to quicken overhaul of banks,” the statement said.

Last week, Vietnam announced that it will be easing business regulations by the most in 25 years as it plans on accelerating the sale of its state-owned firms in addition to reducing the areas in which firms are prohibited from operating starting on July 1.

Starting July 1, the Vietnamese government will reduce the number of areas in which firms are prohibited from operating from 51 to 6 and will ease regulations in over 100 other areas in its largest overhaul of business regulations since private firms were first allowed in Vietnam in 1990.

Indeed, Vietnam has huge potential, as manufacturing moves away from China in search for cheaper costs and higher profits.

Vietnam is estimated  to be one of the world’s fastest growing economies through 2050, according to PricewaterhouseCoopers.  Companies are becoming increasingly eager to bulk up in the southeast Asian nation, and rightfully so, and with due time, investors are likely to follow suit.


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