Clear, transparent and efficient policies are needed to encourage more foreign investors to jump into the Vietnamese securities market if it is to reach its considerable potential. (Photo vneconomy.vn)Hanoi (VNA) - Clear, transparentand efficient policies are needed to encourage more foreign investors to jumpinto the Vietnamese securities market if it is to reach its considerablepotential.
According to theState Securities Commission (SSC), the local market is valued at 124 billion USDand has been among the seven fastest-growing in the world in the past twoyears. It has made significant developments and become more attractive toforeign investors. But although over 1.86 million accounts have been opened sofar, only 1.1 percent of them belong to foreign investors, showing the marketcould absorb more foreign investors.
“We saw foreigninvestors escape from the local securities market in 2016, but they havereturned with focus on both stock and bond markets,” said Tran Van Dung, SSCchairman.
At the end ofOctober, the total value of indirect foreign investment in the securitiesmarket rose 47.4 percent year on year from the end of 2016.
As of October 25,foreign investors purchased a total of 93.9 trillion VND (14 percent of themarket’s trading value) and sold a total of 79 trillion VND (11.94 percent ofthe market’s trading value), resulting in a total net buy value of 14.9trillion VND.
The total value ofassets possessed by foreign investors has reached 27.2 billion USD in the firstnine months, an increase of 34 percent from last year.
There are severalfactors that could help Vietnamese securities market draw more foreigninvestment in the near future, Dũng said.
Firstly,macro-economic conditions should be stable. The country’s growth is estimatedto be above 6.7 percent for 2017 and the next five years, inflation is keptunder control, and foreign exchange and lending rates should be stable, hesaid.
“Vietnam has madechanges in its view to the private sector as the Government now sees privatebusinesses as the most powerful force for the country’s socio-economicdevelopment,” he said. “This favours the development of the capital-securitiesmarket in the future.”
Secondly, theequitisation and privatisation of State-owned enterprises (SOEs) should beenhanced to transform those firms into joint-stock companies in the next one totwo years. Then their shares could be traded on the stock market, increasingthe number of available high-quality stocks and attracting more foreigninvestment, Dung said.
In the first threequarters, the Government offloaded its stakes in 34 of the 44 targeted SOEsthat are slated for the equitisation process.
In the remainingmonths of the year, the Government is speeding up the equitisation of thePetroVietnam Oil Corporation (PV Oil) and PetroVietnam Power Corporation (PVPower), while it will continue selling its ownership in brewer Sabeco and dairyproducer Vinamilk.
The Government willsell its capital in 64 others companies next year, including Vietnam PaperCorporation and mobile service provider MobiFone. Deals expected to come in2019 include Vietnam National Coffee Corporation (Vinacafe), telecom operatorViệt Nam Posts and Telecommunications Group (VNPT), Vietnam National ChemicalGroup (Vinachem) and Vietnam Coal and Minerals Industry Group (Vinacomin).
Thirdly, new financial products should beintroduced to the market, increasing the opportunities for investors, Dungadded.
Incoming productsinclude covered warrants, which will be launched late this year or early nextyear, and the Government bond futures contracts, which will be available on thederivatives market in 2018.
In addition, newderivatives products are being assessed so that they may become tradable in thenext one or two years, meeting investors’ demand for tools to prevent marketrisks, he said.
Fourthly, the legalframework for the capital-securities market will be supplemented in the nearfuture, starting with the amended Law on Securities to be released in 2019,according to the SSC chairman.
Others, such as theLaw of Enterprises 2016 and relevant regulations will also be amended, allowingbusinesses to raise funding through share and bond issuance, and helping marketregulators improve the monitoring of the market, he said.
Nguyen Viet Duc,market analyst at MB Securities Company, said that more foreign investment isbeing drawn into the Vietnamese market as investors note the quality of localassets and market trading liquidity - the two most important factors to drawhigher foreign capital, Duc said.
Many large-capcompanies debuted on the securities market this year, such as VPBank, gasstation operator Petrolimex and aviation firm Vietjet, offering a large numberof high-quality shares for the market, he said.
Those listing alsohelped boost trading liquidity – a factor that helps foreign investors increasetheir purchases easily as they are able to offload existing shares as soon aspossible, he added.
Major barriers toforeign investors now include English information disclosure, the restrictionon exchanging the Vietnamese dong toforeign currencies and the limits on foreign ownership in listed companieswhose business involves national security issues, Duc at MB Securities said.
The Government “needsto work with the Morgan Stanley Capital International and other foreigninstitutional investors on their standards and make adequate changes to thecurrent legal system,” he said.
Of the problems, itappears that the restrictions on foreign ownership remain the biggest challengefor foreign investors.
Foreign investors arenot allowed to freely become strategic shareholders of listed companies, thoughthe Government has made its efforts to improve existing policies.
A decree that tookeffect in September 2015 limits the foreign ownership in conditional businessesto 49 per cent in sectors involving national security issues, such as realestate, telecommunications and banking.
According to theForeign Investment Agency under the Ministry of Planning and Investment, thereare about 113 conditional sectors, in which foreign ownership is limited.
Most of the companiesin those sectors are State-owned firms, operating in commodity production,transportation, construction, agriculture and aquaculture.
According to Phan DucTrung, head of the enterprise renovation and development department at theCentral Institute for Economic Management (CIEM), the current policies limitingforeign ownership may help protect the country’s young industries but will makethose businesses less attractive to foreign investment.
Foreign investors arediscouraged from buying stakes in the companies as they are not guaranteed achance to participate in the business management and governance, he said.
In large-cap SOEs,foreign investors do not have controlling stakes, though they have spentmillions of dollars buying stakes in those companies, he added. “Concerns havebeen raised among foreign investors as they could be outnumbered by a majorityof shareholders and benefit less from the investments.”
CIEM director NguyenDinh Cung said that limits on foreign ownership will discourage strategicshareholders from fulfilling their obligations stated in the agreements andcontracts.
“Foreign investorscould avoid implementing the contracts and agreements properly as they do nothave the rights to make decisions but still have to provide assistance for thebusinesses,” he said.
According to AdamSitkoff, executive director of the American Chamber of Commerce in Vietnam, theVietnamese Government needs to come up with a transparent procedure to evaluateSOEs accurately and allow foreign investors to buy larger stake in the SOEs, ensuringforeign shareholders are able to make decisions and have positive impacts onthe business governance and management.
Economist Can Van Lucsaid that to draw more foreign investment into the local market and keep theflow stable year after year, Vietnam must be consistent with its macro-economicgrowth targets, speed up the restructuring of the economy and encourage thedevelopment of the private sector.
“The Government needsto make ensure the securities market operates transparently to reduce thechance of cross-ownership among companies and the manipulation of shareprices,” Luc said.
Market regulatorsshould offer more securities products, and market members must operatetransparently and meet the standards on corporate governance and risk management,he said.-VNA
VNA
