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Foreigners’ love affair continues
Equity analysts claim foreigners are unlikely to back away from Vietnam’s stock market any time soon.
HSBC’s Vietnam At a Glance report, released on March 12, showed the year-to-date foreign flows into Vietnam’s equity market stood at around $500 million. Institutional sales director Pham Ngoc Bich of leading brokerage firm Saigon Securities Inc. (SSI) reckoned that figure could be even higher.
Bich placed the foreign portfolio capital inflows during the period at VND19 trillion ($914 million) and said most of that money had gone into stocks. The SSI director said foreign interest in the Vietnamese equity market was up. “Some clients who had left Vietnam for a long time have come back. Then there are new clients. They have opened accounts for the first time and have also disbursed,” he said.
According to Bich, more than three-quarters of those clients are international funds based in Hong Kong and Singapore, while the remainder came from the US and Europe.
Bich said slowing inflation and a lower currency depreciation risk were attracting investors. With the US economy likely stabilising, excess funds were expected to continue to flow to emerging markets and Vietnam was now among the best performers thanks to cheap assets on offer.
“Foreign investors value the Vietnamese market this year much more than last year. They are more ready to accept risks in the Vietnamese market,” he noted.
Robust demand for shares from foreigners has driven up the local stock market in many recent trading sessions. Last Thursday March 15’s session witnessed a spectacular trading. Ho Chi Minh Stock Exchange’s VN-Index jumped nearly 2 per cent when foreigners boosted their buying. The market had previously been weighed down by strong selling pressure and had been expected to continue trending downward for a number of sessions.
Indeed, the support has raised concerns among local investors that foreigners might actually drive up the market for easy divestment. Numerous foreign funds are scheduled to liquidate in 2012, with total net asset value estimated by some analysts at VND25 trillion ($1.2 billion). With the local macroeconomic picture expected to be dominated by problems of bad debts and inefficient public investment, many are worried these funds could all exit the country.
Andy Ho, investment chief at VinaCapital - the largest fund management company based in Vietnam, warned against such fears. “There is no rational basis to conclude that foreign funds will divest VND25 trillion in 2012,” he said. “Some funds will have to repatriate their capital, but some will continue their business. Foreign investors have already accepted risks when they invest in Vietnam.”
“Meanwhile, the market upswing in January and February was helped most by hot flows from domestic investors ahead of reducing interest rates. Foreigners also pumped in money at a significant volume but that volume was not enough to raise the market to such a high level.”
Ho said current onshore asset value was still attractive to foreigners and the trend was encouraged by positive macroeconomic signs. “Foreign investors will likely keep up net buying in the Vietnamese market in 2012.”
Juerg Vontobel, chairman of VietNam Holding Asset Management (VNH), saw recent local macroeconomic signals as “enough concrete developments [to give people confidence to] to invest in Vietnamese equities.” He said this was likely to be the case in the long -term despite various domestic inflation pressures.
The share price of London Stock Exchange-listed VNH was up 39 per cent on last year as of March 15. “We don’t foresee monthly consumer price index (CPI) increases similar to last year being repeated in 2012,” said Vontobel, adding that many leading economists predicted an economic turn-around for the second half of this year. But, macroeconomic developments in Vietnam are still under close scrutiny.
“Given the lessons of the past we would expect the State Bank to restrain an accelerated growth of the money supply until inflation expectations are more firmly anchored. Moreover, an important factor in realising Vietnam’s long-term economic potential is to pursue reforms in the banking and real estate sectors,” said Vontobel. Last week’s HSBC report hedged its bets on the Vietnamese economic situation saying there were “still too many ifs and buts for now.”
“While the picture for VND has no doubt improved, particularly in recent months, we remain wary,” stated the report. “If the improvements in the trade balance and real interest rates can become more sustainable, then VND would likely start to look more attractive. We stick to our call of further depreciation, but then see USD-VND stable at VND21,500 in the medium term.”
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