hkskyline
October 23rd, 2005, 10:34 AM
Foreign investors are lining up to give Vietnam a second try
By Laura Santini
21 October 2005
The Wall Street Journal Asia
THERE'S CHINA, the dynamo drawing investors from all over the world. And then there's Vietnam.
After years of fits and starts, Vietnam is starting to pique equity investors' interest again. The country has been striving to follow China into the World Trade Organization by increasing foreign access to its capital markets. Starting Monday, Vietnam will lift its cap on foreign ownership of listed companies to 49% from 30%.
At present, the market is tiny. There are 30 stocks listed on an exchange in Ho Chi Minh City and six on another in Hanoi. Total capitalization is about $340 million, though there's also an informal over-the-counter market -- which Dominic Scriven, director at Dragon Capital, estimates is worth about $2.5 billion.
Vietnam's stock market doesn't exactly have trading "hours." The current routine is a 20-minute trading session followed by a 30-minute one and then another half-hour session just for block trades involving more than 10,000 shares.
The prospect of a higher ceiling for foreign ownership has put a spark in Vietnam's formal market. The Vietnam Stock Exchange index has risen more than 20% since Aug. 1.
Some foreign equity investors based in Ho Chi Minh City aim to grow. PXP Asset Management is setting up a second Vietnam fund. VinaCapital Investment Management, which runs a $95 million fund, is asking investors in the U.S. and Europe for an additional $50 million. Mekong Capital's Mekong Enterprise Fund, which invests in private equity, plans to tap investors in those same places for more cash next year.
Big players interested in Vietnam often piggyback off the locally based money managers. For instance, U.S.-based hedge fund Millennium Partners, which has an office in Hong Kong, has invested in VinaCapital, as has Swiss private bank Julius Baer.
Traders estimate that foreigners own as much as 20% of Vietnam's overall listed market, by capitalization. Foreign investors have already hit the current maximum in five stocks and hold 29% in six others.
Like China, Vietnam has a communist government that's undertaking large-scale privatization. The Asian Development Bank forecasts that Vietnam's gross domestic product will expand 7.5% this year. Investors say Vietnam's similarities with China are emboldening them.
Dragon Capital -- one of the biggest foreign investors, with about $200 million in listed and off-exchange Vietnamese shares as well as private equity -- expects to increase its stakes in some companies. However, a money manager there adds he may wait until after the short-term jolt subsides.
Most listed Vietnamese companies were once 100% state-owned. Some widely held companies that are plays on export growth include Chau Thoi Concrete, An Giang Fisheries Import & Export and Binh Thanh Import-Export Production & Trade.
A batch of new issues is expected, as the government attempts to privatize some 1,000 companies. Vinamilk, a state-owned dairy with shares that already trade informally, is expected to be formally listed by December.
Still, many investors are circumspect about the new opening, and with reason. In the mid-1990s, overseas investors clamored to get into Vietnam after the government indicated it would open its markets -- but the opening proved slow. Franklin Templeton Investments, of San Mateo, California, transformed its Vietnam Opportunities Fund into a pan-Asian fund.
In later years, Vietnam seemed to reverse course on building its equity market. Regulators imposed daily turnover limits and threatened to impose a minimum holding period. The specter of burdensome controls caused most foreigners, and many domestic investors, to get out of the market.
"Given our experience in the past, we would say seeing is believing," says Mark Mobius, who manages emerging-market portfolios at Franklin Templeton.
Research poses another challenge. Most global investment banks don't look at Vietnamese companies, though some firms in the country publish research.
Before Vietnam's exchange was set up in 2000, shares of some private-sector companies traded OTC in brokerage firms and, often, coffee shops. Adding to investor interest today are Vietnam's plans to expand foreign ownership in the OTC market by the end of the year. The listed market has stricter accounting and disclosure rules, so investors hope it will grow, boosting corporate governance.
The listed market's short trading sessions make participation difficult for foreigners who don't reside in the country, says Kevin Snowball, director of PXP's Vietnam fund, based in Ho Chi Minh City. Together, the two exchanges had average daily turnover of about $400,000 in the first eight months of the year; more recently that has grown to about $1.5 million. By comparison, Thailand's daily average so far this year is $436 million.
By Laura Santini
21 October 2005
The Wall Street Journal Asia
THERE'S CHINA, the dynamo drawing investors from all over the world. And then there's Vietnam.
After years of fits and starts, Vietnam is starting to pique equity investors' interest again. The country has been striving to follow China into the World Trade Organization by increasing foreign access to its capital markets. Starting Monday, Vietnam will lift its cap on foreign ownership of listed companies to 49% from 30%.
At present, the market is tiny. There are 30 stocks listed on an exchange in Ho Chi Minh City and six on another in Hanoi. Total capitalization is about $340 million, though there's also an informal over-the-counter market -- which Dominic Scriven, director at Dragon Capital, estimates is worth about $2.5 billion.
Vietnam's stock market doesn't exactly have trading "hours." The current routine is a 20-minute trading session followed by a 30-minute one and then another half-hour session just for block trades involving more than 10,000 shares.
The prospect of a higher ceiling for foreign ownership has put a spark in Vietnam's formal market. The Vietnam Stock Exchange index has risen more than 20% since Aug. 1.
Some foreign equity investors based in Ho Chi Minh City aim to grow. PXP Asset Management is setting up a second Vietnam fund. VinaCapital Investment Management, which runs a $95 million fund, is asking investors in the U.S. and Europe for an additional $50 million. Mekong Capital's Mekong Enterprise Fund, which invests in private equity, plans to tap investors in those same places for more cash next year.
Big players interested in Vietnam often piggyback off the locally based money managers. For instance, U.S.-based hedge fund Millennium Partners, which has an office in Hong Kong, has invested in VinaCapital, as has Swiss private bank Julius Baer.
Traders estimate that foreigners own as much as 20% of Vietnam's overall listed market, by capitalization. Foreign investors have already hit the current maximum in five stocks and hold 29% in six others.
Like China, Vietnam has a communist government that's undertaking large-scale privatization. The Asian Development Bank forecasts that Vietnam's gross domestic product will expand 7.5% this year. Investors say Vietnam's similarities with China are emboldening them.
Dragon Capital -- one of the biggest foreign investors, with about $200 million in listed and off-exchange Vietnamese shares as well as private equity -- expects to increase its stakes in some companies. However, a money manager there adds he may wait until after the short-term jolt subsides.
Most listed Vietnamese companies were once 100% state-owned. Some widely held companies that are plays on export growth include Chau Thoi Concrete, An Giang Fisheries Import & Export and Binh Thanh Import-Export Production & Trade.
A batch of new issues is expected, as the government attempts to privatize some 1,000 companies. Vinamilk, a state-owned dairy with shares that already trade informally, is expected to be formally listed by December.
Still, many investors are circumspect about the new opening, and with reason. In the mid-1990s, overseas investors clamored to get into Vietnam after the government indicated it would open its markets -- but the opening proved slow. Franklin Templeton Investments, of San Mateo, California, transformed its Vietnam Opportunities Fund into a pan-Asian fund.
In later years, Vietnam seemed to reverse course on building its equity market. Regulators imposed daily turnover limits and threatened to impose a minimum holding period. The specter of burdensome controls caused most foreigners, and many domestic investors, to get out of the market.
"Given our experience in the past, we would say seeing is believing," says Mark Mobius, who manages emerging-market portfolios at Franklin Templeton.
Research poses another challenge. Most global investment banks don't look at Vietnamese companies, though some firms in the country publish research.
Before Vietnam's exchange was set up in 2000, shares of some private-sector companies traded OTC in brokerage firms and, often, coffee shops. Adding to investor interest today are Vietnam's plans to expand foreign ownership in the OTC market by the end of the year. The listed market has stricter accounting and disclosure rules, so investors hope it will grow, boosting corporate governance.
The listed market's short trading sessions make participation difficult for foreigners who don't reside in the country, says Kevin Snowball, director of PXP's Vietnam fund, based in Ho Chi Minh City. Together, the two exchanges had average daily turnover of about $400,000 in the first eight months of the year; more recently that has grown to about $1.5 million. By comparison, Thailand's daily average so far this year is $436 million.