Vietnam’s benchmark VN-Index soared to 652.23 points on July 29, up 13.5 per cent since the end of last year. Similarly, the HNX-Index was 5.4 per cent higher than its level on the final day of 2015, at 83.71 points.

Vietnam’s index outperformed other markets and became the fastest-growing market in Southeast Asia in the first seven months of 2016, according to the State Securities Commission (SSC). Liquidity remained high, with an average daily trading value in both the VN-Index and the HNX-Index of VND2.92 trillion ($130.9 million) (16.4 per cent higher year-on-year), with around 15 per cent being transactions by foreign investors.

As the government seeks to spur economic growth to 6.7 per cent this year the stock market will receive a boost from the country’s efforts to accelerate share sales in State-owned enterprises (SOEs).

Lifting foreign ownership limits 

In order to boost inflows into the country’s stock market and win an upgrade to emerging market status in the influential MSCI world markets indices, the government issued Decree No. 60 to ease curbs on foreign ownership in public companies that operate in unconditional business fields. Limitations will still be imposed in certain industries. 

Under the new decree, foreign investors may increase their holdings to 100 per cent in Vietnamese companies that belong to a number of unconditional industries, unless restricted by the companies themselves. There are a few firms that have already secured shareholder approval and raised their foreign ownership limit to the maximum 100 per cent, such as SSI (financial services), VNM (dairy) and EVE (consumer goods). It is likely that more companies will follow suit. In particular, some enterprises (BMP being a typical case) are willing to cancel a few unnecessary registered businesses to be eligible to increase foreign holdings to the maximum.

The cap of 49 per cent will still temporarily apply to all conditional sectors not specifically regulating foreign ownership limits. There are 35 firms whose current foreign ownership is between 45 per cent and the 49 per cent cap.

Foreign holdings in business fields governed by separate ownership regulations, such as banks, will be limited to 30 per cent under the decree.

Two circulars guiding the implementation of Decree No. 60 from the Ministry of Finance (MoF) and the Ministry of Planning and Investment (MPI) are needed for the decree to come into force. At the moment only one circular from MoF - Circular No. 123 - has been issued. This sets the regulations on overseas investors’ activities in Vietnam’s stock market and the required procedures and documents for public companies to increase their foreign ownership in accordance with Decree No. 60.

However, Circular No. 123 alone is not enough, as companies still require another circular from MPI that lists the 267 business lines and industries that are conditional for foreign investment, in order to know the ceiling they can offer. MPI is reportedly compiling the list of conditional industries. Once the list is officially released Decree 60 will fully take effect.   

The removal of limitations on foreign ownership in the securities market is essential in creating more openness and attractiveness for overseas investors and to improve the stock market’s inflows and liquidity as well as other conditions needed for an upgrade from a “frontier” to “emerging” market classification.
      
Stable exchange rate

Although the US Federal Reserve (FED) raised its interest rate by 0.25 per cent on December 2015 and may possibly raise it once again in the future, this is not likely to cause the USD/VND exchange rate to fluctuate too much. The reason is that Vietnam’s inflation rate is under control and the government has continued to devalue the Vietnam dong against the US dollar in a slow, organized manner, to make Vietnamese products more attractive overseas. From the beginning of the year to the end of July the USD/VND exchange rate remained pretty stable.

Foreign investor participation

In the first seven months of this year foreign investors purchased shares with a total net value of VND261.23 billion ($11.8 million) on the two main exchanges, supporting the market uptrend since the beginning of the year. Accumulated to the end of July, foreign investors remained as net buyers, as they were at the beginning of the year, with net buying on HSX and HNX of VND1.408 trillion ($62.1 million) and VND1.782 trillion ($79.9 million), respectively.   

A total of 932 new foreign investors registered with the Vietnam Securities Depository (VSD) from January to July this year, nearly double the 498 doing so during the same period last year, including 727 individual investors (+103.1 per cent year-on-year) and 205 corporate investors (+46.4 per cent year-on-year).

At the end of July the accumulated number of transaction codes registered with VSD was 1,629,051. There are 1,609,602 domestic investors and 19,449 foreign investors, accounting for 98.81 per cent and 1.19 per cent of the total.

Future moves

In the August - December 2016 period Vietnam’s securities market will still be very attractive to foreign investors for the following reasons.

Firstly, Decree No. 60 will have a more visible impact. Implementation of the Decree faces a number of practical challenges, such as regulations on industries that are restricted versus unrestricted. Once these challenges are overcome there will be a significant amount of overseas capital flowing in and boosting the markets, together with increasing merger and acquisition deals.

Secondly, the number of new foreign investors will rise continuously. In the first seven months of this year the number of new foreign investors registered with VSD was 87.1 per cent higher than in the same period last year. We therefore expect that over the remaining months of this year the number of newly-registered transaction codes for overseas investors will similarly increase.

Thirdly, IPOs of some large companies are on the way. Over the last five months of 2016 major corporations will conduct IPOs, such as Saigon Real Estate Corporation (RESCO), Saigon Trading Group (SATRA), and Benthanh Group. With a range of specific business advantages, the equitization of these enterprises present great investment opportunities for foreign investors to enter into Vietnam or expand their existing market share.

Fourthly, valuations are reasonable. The PE trailing 12 months of Vietnam’s stock market is 15.5x, still cheaper than other markets in the region, which attracts many foreign investors seeking potential investment opportunities.

Fifthly, there are new products for the securities market. Vietnam’s stock market is developing new products and services and mechanisms that not only give investors more investment choices but also support them in both basic and advanced transaction processes.

The main securities products are currently shares, corporate bonds and government bonds, and exchange-traded fund certificates. In the time to come the government will deploy new products to the securities market, such as derivatives (covered warrants and index futures). These new products are expected to boost momentum in the market in general. 

VN Economic Times