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Viet Nam: the destination of foreign capital
While investors tend to withdraw capital from emerging markets and frontier markets, Viet Nam is still the destination of foreign investors with foreign indirect investment (FII) in the first half of 2019 reaching US$1.28 billion.
According to Tran Van Dung, Chairman of the State Securities Commission (SSC), from 2016 to 2018, foreign investors have continuously been net buyers on the stock market at a relatively high level, averaging $1.98 billion per year.
Foreign investors, when investing in Viet Nam's stock market, are often interested in the growth capacity of the economy in general and stocks in particular, the market in terms of market capitalisation as well as liquidity and foreign ownership ratio, said Pham Luu Hung, Deputy Director of Investment Advisory and Analysis of Institutional Customers, SSI Securities Joint Stock Company.
“It means that they care about large-cap stocks with high potential growth and the high number of circulating stocks that foreign investors can purchase,” Hung said.
According to SSC, Viet Nam's stock market has continuously developed in and liquidity with the total market capitalisation value as of the end of June, 2019 reaching VND4.3 quadrillion ($186 billion), equivalent to about 78 per cent of the whole country’s 2018 GDP, increasing by 11.2 per cent compared to early 2019.
After 19 years, the stock market is complete in terms of structure (stocks, bonds, derivatives) and diversification in products (stocks, bonds, fund certificates, derivatives and covered warrants).
Last year, the Vietnamese stock market was included in the watch list of the UK-based financial and business information firm FTSE Russell (FTSE) for classification review for a possible lift from a Frontier market to a Secondary Emerging one.
“Viet Nam's stock market has not only developed rapidly in quantity but also in quality,” said Dung.
According to Dung, the Government of Viet Nam continues to make efforts in completing the securities market development policy, attracting foreign investment capital.
The amended draft law on securities has also been submitted to the National Assembly for comments, he said.
In March 2019, Prime Minister Nguyen Xuan Phuc approved the project "Restructuring the securities market and insurance market until 2025", aiming at a more comprehensive stock market, making it an important medium and long-term capital channel for the whole economy.
Along with the macro policies, the Government has also continued to promote equitisation and divestment of state-owned enterprises (SOEs), as well as the listing and registration of trading on the stock market.
According to Dung, with the potential of Viet Nam's stock market and the trend of financial international integration, smart cash flow will likely pour in.
However, Hung pointed out some difficulties in attracting foreign capital.
In the last 1-2 years, the development of the local stock market experienced unfavourable conditions such as the sluggish equitisation of state-owned enterprises.
“There are some cases where foreign investors are disappointed after suffering losses when participating in IPOs and divesting of SOEs,” Hung said.
To attract foreign capital, the most important thing is to speed up the process of restructuring SOEs which has been very slow. Some large SOEs must be equitised in the second half of 2019, Hung said.
Do Bao Ngoc, Deputy General Director of Viet Nam Construction Securities Joint Stock Company, said to be promoted from a frontier market to an emerging market, it is crucial to enhance the fairness and transparency of the Vietnamese stock market.
“Quality of information disclosure and accounting standards also needs to be improved,” Ngoc said.
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