Hot money pursues Vietnam boom
HANOI - Vietnam’s main stock market is overvalued by about 30 per cent because of a wall of hot money flowing in from abroad, leading foreign fund managers warned in Hanoi on Tuesday.
The Vietnam Index of the Ho Chi Minh City Securities Trading Centre has surged 38 per cent this year, after rising 144 per cent in 2006.
However, Fiachra Mac Cana, head of research at Vina Capital investment fund, told a capital markets conference that most of the rise in the market was due to “intense speculation on the part of a new kind of foreign investor”.
Mr Mac Cana said these “hot money” investors were buying largely through large overseas investment houses which have started to issue participatory notes in the Vietnamese market.
He said that price/equity ratios of 25-30 in Vietnam compared with a regional average of 18-20. “It is not sustainable, this market is overvalued,” he said.
Peter Ryder, chief executive of Indochina Capital, and Alex Hambly, chief executive of Prudential Vietnam Fund Management expressed similar concerns.
Mr Ryder said there was a risk that further market rises could trigger government intervention. “The worst thing the government could do right now is to step in. I don’t think what’s happening here is unusual for an emerging market. The government should allow the market to correct itself, as all markets which aren’t over-hindered with rules and regulations will,” he said.
However, officials said the government was prepared to delay further liberalisation of Vietnam’s securities rules until the market cooled down. Vu Bang, head of the State Securities Commission, ruled out raising the 49 per cent limit on foreign ownership of listed stocks in the short term. “It does not mean that the government will not open the door, but it should not be done at such a hot time,” he said.
Figures on the amount of foreign money flowing into the Vietnam market are hard to calculate because most purchases in the past three months have been via participatory notes. A participatory note is an arrangement whereby an institution with stock trading rights in a particular country buys a basket of shares there and holds them on behalf of clients located elsewhere.
Foreign investors are expected to continue to pour money into Vietnam’s markets because of the prospect of further privatisations in state-controlled industries
By Bill Hayton - The Financial Times - January 23, 2007.
Raging Vietnam stock market needs correction-analysts
HANOI - Vietnam's roaring stock market is overvalued and due for a correction and securities laws in the one-party, communist-ruled country need more clarity, analysts say.
They told a two-day capital markets conference in Hanoi that intense speculation by foreign and domestic investors, or "hot money", had created an artificial shortage of stock, sending the Vietnam Index up 38 percent already in 2007.
"At this level, it is not sustainable," said Fiachra Mac Cana, head of research at Ho Chi Minh City-based Vina Capital investment fund. "This market is overvalued."
The price-to-earnings ratio for most stocks listed on the benchmark Ho Chi Minh City Securities Trading Center is in the 25 to 30 times range compared with the regional average of 18 to 20 times.
Government officials and market regulators have said they were concerned about speculators and wanted to protect inexperienced local investors.
The Vietnam Index in Ho Chi Minh City closed on Tuesday at a new lifetime high of 1,040.7 points, up 1.26 percent. The index breached the 1,000-point resistance level at the close last Friday for the first time since the market opened in July 2000.
Last year, the index was one of the fastest-growing in the world at 144.5 percent, much of the increase coming in November and December as companies rushed to qualify for tax breaks by listing before year-end.
"If the market were to correct in the next month or two, I would neither be surprised nor disappointed," Mac Cana said.
Other fund managers agreed the market was overheated but that the performance was not unusual in an immature market. Market capitalisation is just $12.2 billion, still small compared with about $45 billion in the neighbouring Philippines.
At the same Hanoi conference, the head of the State Securities Commission Vu Bang ruled out raising the 49 percent limit on foreign ownership of listed stocks just yet.
"It does not mean that the government will not open the door, but it should not be done at such a hot time," Bang said.
He said companies needed to publish more information to protect investors and amendments to the Securities Law passed last year would require businesses to do so.
Other conference participants, including investment fund manager Lim Boh Soon who is associated with unlisted state-run Vietcombank, urged the government to issue guidelines on carrying out the law.
"They should be making the structure more clear," Lim said. Peter Ryder, CEO of Indochina Capital investment fund, said too much government interference could damage Vietnam's market development.
"The last thing any of us want is the government stepping in a heavy-handed way with a regulation process that might provide some short-term protection but in the long run would seriously damage the development of the market," Ryder said.
Vietnam began gradual market-oriented reforms in 1986 and this year became a member of the World Trade Organisation, opening itself to more foreign competition but able to benefit also from international trading rules.
Reuters - January 23, 2007.
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