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Finance & Banking

Last updated: Thursday, December 14, 2017

 

Vietnam Stock Market: Changes Needed to Draw Foreign Investors

Posted: Monday, July 31, 2017


The stock market is currently challenging the investor confidence as the VN-Index, the primary gauge of Vietnamese stocks, keeps falling. However, if the VN-Index is used for assessment, the Vietnamese stock market still has strong growth steps. At a recent workshop titled “VN-Index at nine-year high - Vietnam stocks before new prospects”, most experts still have optimistic views on the Vietnamese stock market.

Mr Tran Van Man, Investment Director of VEOF-VinaCapital, an open-ended fund, said, foreign investors are very interested in the Vietnamese stock market because of its potential. But, it is very difficult for them to pour US$500 million or US$1 billion into this market because of its limited scale.

In fact, the Vietnamese stock market has long received foreign individual and institutional investors. This is considered an important investment channel on the stock market. Nevertheless, this capital flow tended to slow down since 2016. While interest rate decisions by central banks in the world have caused significant impacts on foreign investors’ decisions, policy barriers and market scale inhibit foreigners from investing in the stock market.

He noted that when investing in Vietnam, foreign investors paid little heed to US Federal Reserve (FED)’s decisions. The Vietnamese stock market is highly potential but risky. The degree of FED’s interest rate adjustment is almost nothing to what they have decided to pour money into here. Its interest rate decision has left almost no impact.

The market size is too small for foreigners
Man believed that the market size is still not really attractive to foreign investors. Vietnam needs to have more improvements, such as communicative languages, because foreign investors cannot get what Vietnamese CEOs are presenting when they visit. While they need information in English, available materials are mainly displayed in Vietnamese only. For that reason, upgrading the market is not necessary for the time being.

According to experts at the seminar, to catch more foreign investors, the Vietnamese stock market needs to create many appealing factors. In terms of scale, a majority of foreign investors in Vietnam are small. At present, many big investors want to invest in Vietnam but the capitalisation of local firms remains small. It will be very difficult for them to find a company to invest US$500 million or US$1 billion. They are awaiting the quicker privatisation of State-owned enterprises (SOEs).

Tran Dac Sinh, former chairman of Ho Chi Minh Stock Exchange (HOSE), said that, Vietnam must have a good environment to lure foreign investors. Vietnam is not recognised as an emerging market but a frontier market by the world. For that reason, it is hard to invite giant investors.

Not upgraded, how will Vietnam market be?
Nguyen Tri Hieu, a finance and banking expert, said, “One of the main reasons is Vietnam’s credit ratings are classified risky. Three leading rating agencies of the world - Moody's, S&P and Fitch Ratings - all ranked Vietnam investment unencouraged, even very risky.

“For such a risky market, it is extremely hard for Vietnam to get upgraded. So, what Vietnam needs to give priority is boosting credit ratings. Traditional investors will be unlikely to enter Vietnam. We should inspect foreign investors in Vietnam to know where they are from. How many of them come from traditional markets? Who are the investors and why they go to Vietnam? Do they invest for short-term profits or make long-term investments?” said Hieu.

Remarking on opportunities and difficulties of the Vietnamese stock market, Mr Man said, “Vietnam’s disqualification for the upgrading does not cause a negative impact on the market. For Vietnam, it must consider some matters before getting it upgraded, for example, foreign ownership rates. Foreigners will not come even though Vietnam’s market gets upgraded.

Assumingly, what will Vietnam have if the market is upgraded. Firstly, commodities in the market will be more diverse and investment funds will have another index-tracked choice.

PV








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