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Foreign investors of the new generation appear
While many senior foreign investment institutions are trying to sell stakes, new foreign investment funds are trying to purchase stakes. Experts have talked about the appearance of a new generation of foreign investors in Vietnam’s stock market.
Senior funds out of cash
Running out of money or not having enough money to invest in listed and OTC stakes, in private equities or equitised companies is now a common trait of the investment funds managed by Dragon Capital VinaCapital and Indochina Capital.
The funds have disbursed all the capital they raised in 2006-2007. Mid-term reports showed that by June 30, 2008, Indochina Capital had $23.2mil in cash left. Vietnam Opportunity Fund (VOF), the biggest fund managed by VinaCapital, had $20mil in cash by August 31, 2008 (Source: Monthly Funds Update VOF August 31).
Meanwhile, the funds managed by Dragon Capital do not have cash. Dominic Scriven, one of the founders of Dragon Capital, said that some funds are restructuring their portfolios, calculating the profitable investments and preparing to raise more capital.
“It is really difficult to raise more funds at this moment. Vietnam’s inflation rate proves to be high, while the P/E index of the listed market is 10-13, not really attractive if compared to other regional countries. The factors will make it difficult to persuade investors to inject more money in,” Mr Scriven said.
The VN Index falls have had big impacts on the NAV (net asset value) of funds. The NAV of VEIL, the biggest fund managed by Dragon Capital, has decreased by 40.56% so far this year, while NAV of Vietnam Growth Fund by 39.82% (Source: DC, Weekly Funds Update September 11, 2008). The NAV of Vietnam Dragon Fund has dropped by 37.34% (Source: DC Monthly Fund Update September 9), while NAV of Indochina Capital decreased by 45.9% in the first six months of the year (Source: IC, Interim Report June 30).
After falling dramatically in May 2008, the NAV of the funds managed by VinaCapital increased again in July and August 2008; however, the increases did not offset the NAV decreases in the first half of the year.
By the end of August 2008, the NAV of VOF fund had decreased by 32% over the beginning of the year, while NAV of Vietnam Infrastructure Fund (VIF) by 18.4%. VIF luckily saw the lowest decrease in NAV because the stakes the fund is holding, including PPC, ITA, Phu My Bridge and Vietnam Aircraft Chartering Corporation, more or less, have maintained stable prices in the context of the sharp VN Index falls.
VinaCapital has recently announced the sale of 4mil Hoa Phat shares (HPG) of the total 14mil shares of the group it is holding.
It is clear that investment funds are being cautious with their portfolio restructuring. They only sell the share items which can bring profit, or unpromising items. The sale of CAN and TAC by Dragon Capital is an example.
Foreign investment funds are trying to manage to improve their NAV, and it would be feasible for them to raise more funds to make more investments when the VN Index is low.
The young generation
While the capital from senior funds is limited, the capital flow from new foreign funds has increased. These include the funds of Citigroup, Deutsche Bank, BNP, funds from South Korea, Singapore and Taiwan.
Several funds keep stakes for the medium term of 6-12 months, while others surf investments. The money they have spent on Hanoi and HCM City bourses at many moments have been equal to the sale volumes of senior funds. However, statistics show that the sales have been a bit bigger than purchases in the last three months.
In fact, foreign bank branches in Vietnam have been playing their roles in foreign investments in Vietnam’s stocks. Some banks have been investing under the authorisation of foreign investors and getting fees for this. This is a kind of ‘hot investment capital’ which can go in and out at any time.
Last year, when the dollar lost its value against other hard foreign currencies, much ‘hot capital’ flew in. However, as the VN Index has been falling down, capital will go out more than in.
It is expected that from now to the end of the year or the first quarter of 2009, the foreign capital will not bounce back to support the VN Index. Senior funds do not have much money, while new funds will consider the disbursement rate after considering the possible profit, and the foreign investments through authorised banks will be limited. Therefore, the VN Index performance will depend mainly on domestic investors.
VNN
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