Fund managers have predicted Vietnam’s move to scrap foreign ownership limits could boost liquidity and cause its stockmarket to soar.
The Vietnamese government unveiled a decree at the end of June stating the 49 per cent cap on foreign ownership would be lifted for most companies in the market.
Templeton emerging markets group executive chairman Mark Mobius welcomed the move – which comes into effect in September – as evidence of the government “expressing a desire to open up the country to more foreign investment”.
The veteran emerging markets investor said the move should lead to better liquidity, less volatility and better corporate transparency.
“Overall, we see this as very strong support for the Vietnamese investment case,” he said. “However, the actual implementation of these changes will have to be seen going forward.”
He pointed out that none of the restrictions on investing in the banking sector had been lifted, which was a disappointment because it was “an important investment target for foreign investors”.
The foreign ownership limit on banking stocks is still restricted at 30 per cent, while other sectors – including telecoms, airlines and defence firms – will also still have a cap.
Michael Levy, manager of the $43.7m (£28m) Baring Frontier Markets fund, said investing in Vietnam had historically been hard because “the liquidity has been difficult”. But he added that the liberalisation was “a clear sign Vietnamese authorities want to liberalise their capital market”.
He said a side effect of a freer market would be an improvement in corporate governance, something many frontier markets aspired to and which would make the country more attractive to foreign investors.
Mr Levy pointed out Vietnam was one of a host of frontier and emerging markets, including Kenya and Saudi Arabia, that were opening up their markets to foreign investment.
The Baring Frontier Markets fund has 5.5 per cent in Vietnam, including a holding in market-leading dairy firm Vietnam Dairy Products, which had hit the 49 per cent foreign ownership limit.
Mr Levy said the company could be in for a rerating as new investors could now buy in.
“We are in a strong position, but new investors are going to look at this new opportunity and it’s likely to result in the price going up over time.”
Emily Fletcher, co-manager on the BlackRock Frontiers Investment Trust, said the key benefit was likely to be an improvement in liquidity.
She added that previously when a stock was near its foreign ownership limit there was “a concern that if you sell you might not be able to buy it back in the future”, which damaged liquidity.
She said that on an average day only about 8 per cent of the shares traded on the Vietnamese market were by foreign investors.
“Most are domestic investors, and we are not going to see that change overnight,” she said.
“As an individual event it does not change our view, but in the context of ongoing market reforms it’s a strong positive and one of the reasons we have a substantial weighting in Vietnam.”
RESTRICTIONS
49%
Percentage foreign ownership of most Vietnamese stocks was restricted to before market liberalisation
30%
Amount foreign investors will still only be allowed to own in Vietnamese banks
