Vietnam is potentially one of the most exciting markets in Asia, UBS Bank in a recent report said and suggested the nation address issues such as share supply and foreign ownership limit to attract more foreign investors.
In the report, UBS’s global research team gave a number of advantages for Vietnam’s market. It said the country has a large, young population and almost 50% of Vietnamese are under 30 and its gross domestic product (GDP) per capita is comparable to India and the Philippines, with similar potential for rapid growth.
Competitive wages are attracting significant new foreign direct investment (FDI), notably in electronics. Internet penetration of 40% should support growth in ‘disruptive’ companies, which can boost productivity.
Macroeconomic stability was restored in 2012 and interest rates have fallen proportionately. While restructuring of the banking sector and State-owned enterprises remains a work in progress, banks are lending again and GDP growth in the first quarter of 2015 was above expectations, at 6%.
Looking ahead, UBS said Vietnam is potentially the largest beneficiary of the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), which are being negotiated. Furthermore, important new legislation taking effect in 2015 regarding foreign ownership of property, bankruptcy and enterprises should help restructuring and support growth.
However, it said risks of Vietnamese equities include rising public debt, a repeat of high inflation and a political transition in the next 12 months.
“The biggest deterrent for foreign investors is not value, but supply, in our view. There are almost 700 listed companies in Vietnam, but 90% have a market capitalization below US$100 million. Of the remaining 10%, we estimate the total available room to be only US$3.2 billion, concentrated in a small number of financials,” the report said.
Beyond the foreign ownership limit, a number of companies have small free floats. In the case of PetroVietnam Gas Corp., the largest publicly-traded company in Vietnam by capitalization, the free float is only 3%. Some banks have also floated a small part of its shares on the market.
In addition, the foreign ownership limit on Vietnamese companies is 49%, and for many popular companies the limit is already full. The absence of a foreign board where companies can trade at a premium the local shares makes finding stocks difficult.
“A proposal by the stock exchanges to raise the foreign ownership limit to 60% was blocked in early 2014. However, a number of investors and securities companies we spoke with believe it is possible Vietnam could adopt a structure similar to Thailand’s Non-Voting Depository Receipts,” UBS said.
“If it were to do so, it could unlock potentially significant additional foreign demand, and lead to a re-rating of Vietnamese equities. However, there is no indication of when, or if, Vietnam will adopt such a structure,” the bank added.
Secondly, Vietnam is currently classified as a ‘frontier’ market, not an ‘emerging’ market. So, it has yet to draw attention from investors like Korea, Japan and Thailand.
As a percentage of GDP, the total market cap of Vietnamese equities is currently 30%. By comparison, Thailand and the Philippines are trading at 116% and 95% of their GDP respectively.
In February, Vu Bang, chairman of the State Securities Commission (SSC), said that SSC was revising Decree 58 guiding the implementation of the Securities Law. Foreign holding increase is the most important issue of the decree.
SSC expected to issue the decree in the second quarter of this year to better foreign capital attraction, Bang said
Source: http://english.thesaigontimes.vn/
Key words: Vietnam, exciting market, Asia, ASEAN
