Vietnam eyes foreign investors to expand stock market

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A man watches share prices at an Asia Commercial Bank (ACB)'s securities trading floor in Hanoi. The VN Index rallied 3.8 percent since then to a 27-month high on May 30 before falling 1.3 percent. Photo: AFP

Vietnamese regulators will submit a proposal next month to ease restrictions on foreign ownership in companies as they lure more international investors to a stock market that's 14 times smaller than Singapore's.

The proposal would raise the foreign ownership limit for publicly-traded companies from the existing 49 percent, Vu Bang, chairman of the State Securities Commission, said in an interview yesterday. The Ministry of Finance will submit the plan, which the commission has helped prepare, to the government next month for consideration, he said, adding that the government will decide the new ownership limit.

Vietnamese regulators see foreign investment as one key to the stock market's growth, as the biggest year-to-date stock purchases by international investors since 2008 made the benchmark VN Index Southeast Asia's best performer. The nation's stocks are valued at $45 billion, compared with $614.7 billion in Singapore, the region's largest market.

"If there is a breakthrough in foreign investment, it will positively impact the development of the stock market," Bang said. "In previous years, there were recommendations, but they were just at a low level. Now we are having official discussions and have been consulting with the relevant ministries."

The proposal will include allowing foreign investors to buy non-voting shares to boost their holdings, he said.

Largest advance

The VN Index closed 1.2 percent higher today, the biggest increase in Asia, at a one-week high of 520.9. The gauge has climbed 26 percent this year, at least 10 percentage points more than any other Southeast Asian benchmark gauge tracked by Bloomberg. The Jakarta Composite Index was the next best performer with a 16 percent gain.

Under the proposal, ownership limits may be raised for certain industry groups or approvals may be granted on a case- by-case basis, Bang said. Changes to foreign ownership limits are subject to the government's approval and no time frame has been set, he added. The government will consult with ministries and others before making a final decision, he said.

"Expectations are high," said Dominic Scriven, chief executive officer of Ho Chi Minh City-based fund manager Dragon Capital, which oversees about $1.1 billion. "We would need to see exactly what comes out, but certainly there's scope for the market to be positively impacted."

About $51 million of securities traded daily on average this year on the Ho Chi Minh City Stock Exchange, the country's main bourse, compared with $1.34 billion for Singapore, according to data compiled by Bloomberg.

Impressive growth

International investors bought a net $244 million of Vietnamese stocks since the start of the year to June 5, the biggest purchases for the same period dating back to 2008. The VN Index has rallied 48 percent since the start of 2012 to yesterday as the central bank cut interest rates eight times and the government approved the formation of a debt asset management company to soak up banks' bad loans that were hampering growth.

Vietnam's stock market has expanded "impressively" as the government succeeded in curbing inflation, interest rates fell and foreign-exchange reserves rose, Bang said.

The central bank has reduced policy interest rates by 8 percentage points since March 2012 as inflation slowed to 6.36 percent in May, the lowest since August 2012. Prime Minister Nguyen Tan Dung approved on May 22 the formation of the asset management company to address bad loans in the banking system and boost sluggish credit growth.

The VN Index rallied 3.8 percent since then to a 27-month high on May 30 before falling 1.3 percent to yesterday. The gauge trades for 14.7 times reported profit, more than the MSCI Emerging Markets Index's 11.9 multiple, data compiled by Bloomberg show.

Fund access

The market's rebound "hasn't been really sustainable" because companies still face many difficulties, Bang said, adding that one in five publicly traded companies may post losses this year. Investors are awaiting the results of the government's plans to resolve non-performing loans, restructuring banks and state-owned enterprises, Bang said.

Non-performing loans reported by commercial lenders stood at 4.51 percent at the end of March, Deputy Prime Minister Nguyen Xuan Phuc told the National Assembly on May 20, down from the central bank's estimate of 7.8 percent at the end of last year. Credit-rating companies estimate bad debt at between 10 percent and 20 percent, according to JPMorgan Chase & Co.

In the first five months, the number of companies that were able to raise capital through the stock market dropped between 50 percent to 60 percent from the same period last year, according to Bang.

"When companies are more easily able to access bank funds, their businesses will fare better," he said. "The stability of the stock market will definitely come back."

Exchange merger

The commission will also submit this year a proposal to merge the country's two main exchanges in Hanoi and Ho Chi Minh City by the end of the year, he said. Bang announced the merger in March last year and had initially set a target for the proposal in the third quarter of 2012.

To help further attract investors, the two exchanges plan to add more products such as covered warrants, he said. The regulator will also offer a plan for derivatives by the end of this year, Bang said.

Earlier this year, the regulator expanded trading bands on the country's two exchanges and raised the margin-financing ratio limit. The commission has also proposed extending tax exemptions and reductions for stock trading this year.

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