Vietnam Equities Lead Southeast Asia As Government Is About To Remove A 49% Foreign Ownership Cap

Vietnamese equities are outperforming the rest of Southeast Asia as the government is to remove a 49% foreign ownership cap in September.

The Vietnamese stock market has climbed 13.4% and is leading gains in Southeast Asia followed by the Philippines so far this year.

Investors are preferring large cap names as they offer more liquidity. Here are some top performers:

• Vietcombank which is the largest firm by market value, has jumped 55%
• BaoViet Holdings, top insurer,  has gained 91%.

In the second quarter, net foreign buying of Vietnamese shares rose to $135 million, the highest for any quarter since 2007, according to Reuters.

“The foreign ownership restrictions have been “a major hurdle” to developing Vietnam’s capital markets and have deterred away foreign investment,” Andy Ho, CIO of Ho Chi Minh City-based VinaCapital, which manages about $1.4 billion in assets, told Bloomberg.

Foreign investors can now increase holdings to 100% from 49% starting in September in “a number” of industries, according to a decree by the Vietnamese government which was published at the end of June.

According to the decree, other companies will keep their 49% limits, while holdings in sectors governed by separate ownership regulations such as banks will remain at 30%.

The economy is growing at its fastest pace since 2008 and the government wants to turn Vietnam into a manufacturing hub to compete with China where the costs of production have gone up. There are already big technology brands operating in Vietnam like Microsoft or Samsung.

The amount of foreign direct investment (FDI) Vietnam attracted during the 2003-14 period was over eight times the size of its national economy, according to an index measuring FDI channeled into the world’s emerging markets conducted by Financial Times.

Vietnam took the lead in terms of new FDI projects, outstripping other larger emerging markets like China or Russia.

Investors also like the fact that the Vietnamese stock market is the second-cheapest in Southeast Asia, after Singapore.

“Foreign investors recognise that the market is cheap, and that the economy is arguably in the best shape it has ever been in (…) In our opinion the foreign limit reforms put Vietnam on the cusp of a breakout,” said Kevin Snowball, CEO of PXP Asset Management in Ho Chi Minh City.

So far, foreign investors have hit the ownership threshold of just 30 listed companies, Reuters reported.

Vietnamese stocks outperform Southeast Asia