Foreign cash inflow surges

This has been a bearish year for the Vietnamese capital market, as foreign investors remained net sellers throughout the year on the stock exchange. Between January and November, foreigners withdrew approximately VND6.6 trillion (US$290 million) from the Vietnamese market, which is a stark contrast compared to the previous years.

In the first three weeks of December alone, the figure shot to VND1.6 trillion (US$70.3 million).

The market experienced the greatest turbulence during the Brexit incident in June, when the UK voted to leave the European Union. The main gauge, VN-Index, dropped 22 points on June 24 to 622, and most stocks were marked in the red.

Later events, including the US presidential election of Donald Trump and the US Federal Reserve raising interest rates, did not cause any significant drops in the VN-Index.

Andy Ho, chief investment officer from VinaCapital, acknowledged that in the short term, foreign capital may flee emerging markets, such as Vietnam to return to the US. Specifically, Trump has encouraged US multinationals to move their money back home in order to create jobs for American citizens.

As an incentive, little to no tax will be imposed on these returning capital flows.

“It’s true that the Vietnamese market will be affected in the short term due to this global outflow of capital, and some investors may sell shares on the market in 2017. However, these exits are not a completely bad thing as they actually create new opportunities for other investors in Vietnam. VinaCapital will continue its commitment to the Vietnamese market and deploy more capital here in 2017,” said Ho.

Le Anh Tuan, chief economist of Dragon Capital, emphasised that the Vietnamese market is still affordable compared to nearby countries, making it attractive to foreign investors. Vietnamese stocks’ overall price-per-earning ratio would fall from 15.6x to around 11x if the top five largest companies on the exchanges are excluded from the calculations.

“If we also take in private placements, foreign investors have actually bought a net of US$950 million in 2016. I expect this trend to continue in 2017, in which investors from overseas are interested in both Vietnamese-listed and unlisted shares,” said Tuan.

He added that possible risks for the Vietnamese market include inflation, foreign exchange rates, and recovering commodity prices.

Foreign investors are likely to seek opportunities beyond existing listed stocks. VinaCapital has already announced plans to launch a new fund, called Vietnam Special Access Fund, in 2017 for firms on the Unlisted Public Company Market (UPCoM).

Once ignored by foreign investors due to its loose regulation, the UPCoM has recently gained significant thanks to the big-name newcomers like Airport Corporation of Vietnam, Vietnam Seafood Products JSC, and Hanoi Beer Alcohol and Beverage JSC (Habeco).

Similarly, Chris Freund, partner at Mekong Capital, told VIR that as a private equity firm, Mekong Capital will continue to  focus on strengthening the operations and management of investee companies in Vietnam next year.

Short-term macro-economic fluctuations will have little effect on the fund’s investment decisions.

Other opportunities, according to economic expert Tran Du Lich, include the scheduled state divestments from giants such as Sabeco, Habeco, and Vinamilk.

Moreover, the market will welcome initial public offerings and new listings from major private companies such as real estate developer Novaland and low-cost airline VietJet Air, as well as the soon-to-be equitized mobile network operator Mobifone.

“To lure foreign investors, the number of free-floating shares in these companies must be higher than 20%. This is especially true in the case of equitized state-owned firms, where the government still remains the lion’s share of stock,” Lich said.

At Vinamilk’s share auction earlier this month, Nguyen Duc Chi, chairman of the State Capital Investment Corporation, promised that the state investor will discuss new recognitions on book building in 2017.

Morgan Stanley, one if Vinamilk’s advisors in the sale, has suggested this method to attract foreign investors in Vietnam’s future share sales.