Equity market draws back investors

Foreign investors are edging back into emerging markets like Vietnam on hopes the recent significant recovery of the equity market will reassure those hoping to capitalise on stronger economic growth in the emerging world.

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Foreign investors pin their hopes on the significant recovery of the equity market in Viertnam (Photo: tinnhanhchungkhoan.vn) 


Investment funds including Ashmore Group Plc and Coeli Asset Management SA have increased holdings in the US$174 billion market since March, while foreign investors have returned to net buying so far this month, the first time since January.

Swedish-based investment fund Coeli Asset has increased the proportion of Vietnamese stocks in its portfolio from 18.6% in early 2020 to about 25%, buying shares after the March selloff. The portfolio value of the fund in frontier markets now totals some US$350 million.

“The price-to-books of Vietnam equities have deteriorated materially over the last 18 months and do not price in the long-term opportunity,” Coeli Asset fund manager James Bannan was quoted by Bloomberg as saying.

The price-to-book (P/B) ratio compares the stock price with underlying assets. A ratio below 1 could indicate either an undervalued stock or that investors have concerns about how well the stock is backed up by assets. A low P/B is a red flag for investors.

The VN-Index is trading at 1.9 times book value, down from about 3.3 times in March 2018.

PYN Elite Fund, a Finnish fund which focuses on Vietnamese shares, held portfolio value of US$438 million in Vietnamese equity as of the end of May this year, of which 94% is in stocks and 6% in cash.

The return of foreign capital has assisted domestic investor inflows in driving the benchmark VN-Index up 28% since April, making it the second-best performer globally.

Attractive equity market

Apple Inc is one of the most prominent names wanting to transfer a part of its production activities to Vietnam.

A supportive local currency and the acceleration of tensions between the world’s two biggest economies in the US and China are drawing investors’ interest in Vietnam as a cheaper supply-chain alternative to China. Apple is among global giants that have moved in to make use of the country’s manufacturing power.

The Vietnamese dong was among the best-performing Asian currencies this year, down 0.2% versus the US dollar.

Andy Ho, head of Investment Department of VinaCapital, told news site tinnhanhchungkhoan.vn that foreign investors were attracted to the Vietnamese equity market as they hoped to capitalise on promising earning prospects in the emerging country.

Governments of emerging countries, including Vietnam, had decided to inject a total capital flow of US$6 trillion into their economies to ease pandemic economic pain, Ho said.

Foreign investors who can access this capital were paying more attention to the Vietnamese equity market, which offers greater returns than investment opportunities in their country, where bonds are offered at negative interest rates, deposit rates stay below zero and dividend payout ratios are only from 1 to 2%, he said.

In Vietnam foreign investors could enjoy dividend payout ratios of 3 to 4%, bond interest rates of 3 to 4% and deposit interest rates of 6 to 7%, Ho said.

The political situation and business environment in Vietnam remained stable, he said, adding that with a population of some 90 million, purchasing power would increase exponentially, attracting many businesses as well as domestic and foreign investors.

According to Ho, developed countries pumping about US$6 trillion into their economies would help boost the recovery of the global stock market. For example, in 2017, the VN-Index soared by nearly 50% after the European Central Bank issued US$1 trillion in new-printed money.

VNS/VNA