17:21 | 06/08/2015 Investment
(VEN) - The prime minister issued Decree 60/2015/ND-CP on the amendment of Decree 58/2012/ND-CP guiding the implementation of some articles in the Law on Securities. A key part is the lifting of the cap on foreign ownership in Vietnamese listed firms. VinaCapital Chief Investment Officer Andy Ho talked about investor expectations after the amended decree takes effect on September 1, 2015 in an interview with Vietnam Economic News’ Quynh Nga.
Foreign investors will be able to engage more deeply and actively in Vietnam’s economic development. What’s your view on the issue?
This is a key change which will help Vietnam to fully implement its commitments as a World Trade Organization member and may serve as a catalyst for ascension to MSCI Emerging Markets Index. Foreign ownership limits on listed companies have caused difficulties for many investors and has been a major hurdle to the capital markets. The limits have capped the level of foreign participation in the business strategies of Vietnamese enterprises and have depressed valuations. Therefore, the lifting of foreign ownership restrictions for Vietnamese listed equity is needed.
Will the Vietnamese stock market see any change?
The Vietnamese stock market has a lower value than comparable regional markets due to low liquidity. Measured on a simple PE basis, the market currently trades at 13 times trailing PE, with a liquidity discount in recent years of between 25-35 percent. After the lifting of foreign ownership limits, local and foreign investors are expected to actively participate in the market, contributing to improving liquidity and narrowing the discount.
A greater participation of foreign investors and an increase in listed stocks will help the market become more stable and healthier. Vietnam’s market capitalization is currently US$60 billion, with daily trading volume ranging around US$100 million, and foreign participation at less than 15 percent due to the limits. Almost all transactions in the market are made by local investors and a large amount of investment capital is assisted by margin lending levels. This has featured as main reasons for market volatility.
The lifting of foreign ownership restrictions for Vietnamese listed equity will open up opportunities to attract more foreign capital in the stock market. What do you think?
Having a capital market open to foreign investment is one of the key criteria for MSCI Emerging Markets Index. An amended decree with wider terms promises to help Vietnam become an emerging market following these key criteria. In addition, the Vietnamese market could strengthen foreign capital attraction with an increase of 15-20 percent in the coming time.