Vietnam's prime minister is expected within days to approve an amended law allowing foreigners to own up to 60 percent of shares in some listed firms, the latest incremental move towards easing tight state controls on the economy.
The draft, seen by Reuters, would increase the foreign ownership limit and voting rights from 49 percent to 60 percent, but only in certain sectors and companies, and after approval of shareholders and Prime Minister Nguyen Tan Dung himself.
The proposal also increases the foreign voting rights percentage in unlisted companies to 49 percent, to match the current 49 percent foreign shareholding limit.
Investors have welcomed the idea as a positive step towards bringing more capital into Vietnam's two bourses, but say the law needs to be loosened further if the country is serious about attracting investment and boosting the performance of its companies.
The main stock exchange in Ho Chi Minh City has climbed 21 percent this year, the best performer in Southeast Asia and No.4 in Asia, according to Thomson Reuters data.
It is still down 57 percent from its peak in March 2007 and only a minor player in the region with a market capitalisation of $40 billion, an eighth the size of Thailand and a tenth of Singapore.
Vietnam's government has promised reforms as part of a "master plan" aimed at reviving an economy once seen as Asia's next emerging-market star, but one hit badly by high levels of toxic debt, scant retail spending and a startling number of bankruptcies of small and medium-sized private companies.
Although Vietnam probably achieved economic growth of 5.42 percent in 2013, according to government data, the figure is seen as far beneath its potential.
An official at the State Securities Commission, who requested anonymity, said the proposal was sent by the Finance Ministry to Dung last week and was expected to be approved soon.
The document was short on specifics, but said the increased foreign shareholding would not apply to sectors "in which the state needs to control foreign capital". It did not elaborate, or name the restricted sectors.
Although the proposal is viewed as a positive move, investors and economists say much more needs to be done because reforms to date and those in the pipeline represent no real shift away from heavy state controls they say have stifled growth.
The state's dominance of the economy has been a sticking point in Vietnam. State-owned enterprises (SOEs) modeled on South Korea's world-beating "chaebols" have been accused of abusing their preferred status to engage in graft and reckless borrowing that has been a drain on the public purse and has badly hurt banks, which have tightened credit lines.
What has troubled would-be investors is a new amended constitution that takes effect on Jan. 1, reaffirming that the state sector must "play the leading role" in the economy.
Tran Tai, a portfolio manager at the Japanese fund Asiavantage Global, said the stocks would likely gain at first under the new proposal, but it would take time to see any real impact.
"It's a positive sign from the government, but not as good as investors expected," Tai said.
The average foreign shareholding in companies listed on the Ho Chi Minh Stock exchange this year was 24 percent, the bourse's chairman, Tran Dac Sinh, said recently, suggesting there was plenty of scope for foreigners to buy.
That, however, depends on how attractive the companies are.
Dominic Scriven, CEO of asset management and securities firm Dragon Capital, said a big problem Vietnam had was that many of the top companies had run out of room for more foreign ownership, with 12 of the top 30 already at their limit.
Local funds, he said, were managing about $1 billion in total, a tiny sum compared with markets like Thailand, so laws should be liberalised further to bring in more capital.
"It is essential that these restrictions on foreign investors are quickly removed," Scriven said.
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