Foreign Investors Still Hopeful of Vietnam Stock Market

The listing market is on the downtrend and the over the counter (OTC) market is frozen, but foreign investors seem to see no negative impacts on their expectations in the Vietnamese stock market. Foreign indirect investment flows as well as the movements of foreign investors showed no intention of withdrawing from the Vietnamese market, as Merrill Lynch recommended. They are possibly preparing to make another investment wave.

 

A dozen huge investment funds have been set up in Vietnam recently. Securities experts said the high investment demand of foreign investment funds will meet the supply from upcoming giant IPOs. The presence of foreign investment funds will boost development of the Vietnamese stock market in the coming time.

 

First and foremost, the UK-based venture investment fund, GrandFord, joined hands with Ho Chi Minh City-based fund management company, Lion Capital, to raise funds for property projects in Vietnam. In early July, ATIP, a US energy company with oil and gas project in Tonkin Gulf with investment of US$80 million so far, has officially listed its shares on NYSE-EURONEXT (Paris).

 

Mekong Capital also established its third fund, the Azalea Fund, with investment capital of US$100 million. The main emphasis of the Azalea Fund is investment in equitised State-owned enterprises. The increasing concerns of Mekong Capital in the Vietnamese market are represented by the increasing investment capital sources. The first Mekong Capital fund had investment capital of US$18.5 million, while the second fund had US$50 million and the third, US$100 million.

 

On August 14, VinaCapital, a leading investment fund management company in Vietnam, set up the US$402-million Vietnam Infrastructure Limited, which lists shares on the London Stock Exchange with the transaction code of VNI. This is the first public infrastructure fund in Vietnam, which will invest in energy, transport, telecom, water supply and others. Mr Don Lam, General Director of VinaCapital, said Vietnam has always kept its average annual economic growth of 7.5 per cent in the past 10 years but its infrastructure system fails to keep pace with economic change. This is a huge opportunity and VinaCapital is not missing it. With the formation of VNI, VinaCapital is studying projects on expressways, airports, power plants and telecom systems, and is awaiting opportunities to invest in State-owned infrastructure assets which are equitised.

Besides, other investment funds are waiting for licences from the State Securities Commission (SSC), especially a Japanese-led fund with estimated investment capital of US$200 million. Financial institutions of Hong Kong and China also arrived in Vietnam by setting up financial investment consulting companies, which will initially focus on the IPO of giant State-owned firms in the coming time.

 

The setup of a dozen foreign investment funds in Vietnam partially showed their expectations in the Vietnamese market, unlike the pessimistic forecast given by Merrill Lynch in July.

 

Don Lam, General Director of VinaCapital and President of VNI, said newly-established foreign funds usually need one to three years to commence operations in Vietnam. “Hence, several professional foreign investors and several investment funds will not invest in stocks if the prices remain high for them. They will put the money into the banks and wait for their fortunes,” he added. At present, the falling price of securities is a good chance for foreign investors.

 

Since mid-April, most securities, whether listed, unlisted or auctioned, have seen weaker demand and a large proportion of offered bids are unsold. Don Lam explained that foreign investors are not keen on the bids because they pay much attention to the (price/earnings) P/E ratio. “In fact, the P/E ratios of many stocks were very high from March to June, discouraging foreign investors from buying. They have to wait until the price falls down to buy in.”

 

Regarding unsuccessful IPO by several giant firms, Mr Don Lam stressed, “In fact, foreigners placed low bidding prices because the price of securities were too high that time. Most stocks have the P/E ratio of over 30-40. Prudent investors will not buy securities at such a high P/E ratio.”

 

When the market fell into a fever, domestic investors struggled to buy at sky-high prices. Meanwhile, foreign investors have an investment council and a management board that they have to pass this council to make investment strategies. According to Mr Don Lam, foreign investors are keener on medium-term and long-term securities investment. Once they purchase, they will keep and will not sell.

 

Mr Don Lam added there is no possibility that foreign investors will flee the Vietnamese stock market as Merrill Lynch forecast (reducing investment concerns to zero). Mr Don Lam said, “In the past three months, foreign investors did not sell much but they did not buy either. This is also a reason for the downtrend of the Vietnamese stock market.”

 

“The report given by Merrill Lynch was only based on the status of an independent researcher. They forecast that the Vietnamese stock price was already too high and gave discussions and recommendations against buying.” He said there are no grounds for the withdrawal of foreign investment capital out of the Vietnamese stock market.

Mr Don Lam said each investor has his/her own way to channel his/her capital and he/she does not need to follow any judgement from organisations. Given VinaCapital’s establishment of property infrastructure fund VinaLand, the VinaLand fund took shape when the real estate market is at the most frozen. It would have not set up if founders only look at what is happening now. VinaLand has had initial successes with many big projects, which may partially help defreeze the real estate market.