Scores of foreign investment funds are rushing to pump billions of dollars into Vietnam to sound out investment opportunities in a country with dynamic equities and the fastest growing stock market in Asia. Financial experts believe foreign indirect investment (FII) sources will possibly overtake foreign direct investment (FDI) in the near future. Nguyen Hong reports.

Private Equity New Markets (Penm), a Danish equity fund, received a lot of attention in the local and international media last week following the announcement that it plans to invest in Vietnam.
A newly-established private equity fund, Penm has $80 million in initial capital, provided by two Danish pension funds. The fund has been established to provide private companies in emerging markets with capital and know how.
The fund is managed by BankInvest, the leading Scandinavian institutional investor in emerging markets, and owned by 52 regional small- and medium-sized private banks. It has a total of $23 billion under administration, with $3bn being invested in emerging markets.
Hans Christian Jacobsen, managing director of BankInvest, said his firm was in the process of building up an office in Ho Chi Minh City by early November. “The Vietnam office will assist, together with local venture partners, the Penm head office in Copenhagen in identifying new investment opportunities,” he said.
“Vietnam is the first country for Penm to set up a representative office, and the reason for this is obviously the enormous potential in Vietnam for private equity investments,” he said.
Focus for Penm’s investments are local, well managed companies, with a good potential for growth, either for exports or on the domestic market. Financial institutions, agri-businesses, branded consumer goods, packaging materials, and retail are its interesting target sectors.
“We would like to take minority positions in these companies, but we see ourselves as partners, without taking control. It is therefore important for us that the companies we invest in, share the same visions and strategies as ourselves,” he said.
The size of the investment from Penm would normally not exceed $15m.
“The minimum size depends on the potential for an investment company, but often the investment would not be smaller than $500,000,” he said.
In order to avoid later differences in opinions, Penm would identify an exit route for the investment at a time when the investment is carried out.
“However, we see ourselves as patient investors, and we can stay up to eight years, and maybe even longer if required, before we need to exit our investments, to the benefit of the Danish investors,” he noted.

New wave of FII
The appearance of Penm takes place not so long after Merrill Lynch, a multinational financial corporation with trillions of dollars of clients’ assets in 40 countries, had unveiled a positive report on Vietnam’s investment potential, which surprised the international financial market.
Merrill Lynch has also decided to enter Vietnam’s financial market. The corporation has received a trading code through its custody bank HSBC, and selected Bao Viet Securities Company (BVSC) as the broker.
Although it is still not known when Merrill will start and how big the size of its investment is, the opening of trading account, application for trading code, and the choice of broker of Merrill Lynch shows that it is ready to enter the Vietnam’s stock market. Many other investment institutions, besides Merrill Lynch, have also initiated their trading code applications through HSBC as part of their investment plan, according to Vietnam Securities Depository Centre (VSDC).
Some big funds such as Old Mutual Clay Finlay Emerging Markets Fund, Epoch Global Equity Shareholder Yield Fund, BankInvest Emerging Markets Long-term Economic Investment Fund, and Kitmc Worldwide Vietnam Fund 1 have received trading codes.
Pheim Singapore (or Pheim Asset Management Pte. Ltd.), one of the most successful investment funds in South East Asia, specialising in small and medium enterprises, has also tabled plans to invest in Vietnam.
Pheim, worth $700 billion, has been growing at 29 per cent since the beginning of the year. It is one of the three members in the Pheim Asset Management Group besides Pheim Asset Management Sdn Bhd (Pheim Malaysia) and Pheim Unit Trusts Berhad (Pheim Unit Trusts).
Vietnam Investment Review has been told that PPF Group, one of the Czech Republic’s leading financial firms, is expected to establish its investment fund in Vietnam with a registered capital of $50-$60m in the first phase. Another group from Israel also intends to pour investment into the country.
In addition, some of the fund management companies operating in Vietnam, including Dragon Capital, VinaCapital, Mekong Capital and Indochina Capital, plan to set up more funds to mobilise capital.
Together with the establishment of investment funds, an increasing number of foreign individuals and organisations have now invested in the Vietnamese securities market recently. The VSDC, under the State Securities Commission (SSC), has on average provided trading codes for between 40-50 foreign investors a month.
Foreign securities firms have also rolled up their sleeves to enter the Vietnamese market. Among them is Nomura International (Hong Kong) Ltd., Blackhorse Asset Management Pte. Ltd. of Singapore and Mirae Maps Investment Management Co. of South Korea.
Financial experts have forecast that a new wave of foreign indirect investment (FII) will flow into Vietnam through different channels in the near future due to the country’s strong economic growth, political stability as well as its accession to the World Trade Organization (WTO).
Dominic Scriven, director of the UK fund management firm Dragon Capital, said Vietnam is likely to attract around $500m in FII this year, representing one-third of the total amount so far. Vietnam saw the first inflow of FII when seven foreign investment funds, including the Vietnam Lazard Fund, Templeton Vietnam, and Beta Fund, were set up in the country with a combined capital of $700m. However, these funds withdrew from the Vietnamese market after the 1997 economic crisis in Asia except for the Vietnam Enterprise Investment Fund (VEIL) run by Dragon Capital.
Scriven said that since 2000, foreign investors have resumed their interest in the Vietnamese market. Dragon Capital and foreign investors have made profit from their business activities in Vietnam, he said, adding that this fact is making the country more attractive to other investors.
The second wave of FII began in 2002 as foreign investors found great business opportunities in Vietnam’s equitisation of state-owned enterprises. The event was marked by the appearance of the $18.5m Mekong Enterprise Fund.
Since then the country has seen the establishment of 15 funds with a total capital of nearly $1.5bn. Financial experts forecast the amount of FII would increase strongly in the years to come along with the appearance of new funds, and possibly overtake the FDI.

Bright outlook
Explaining the rapid increases in FII, Scriven said many people consider Vietnam a growing economy. They appreciated Vietnam’s competitive capacity, investment opportunities, as well as its integration process, state-owned enterprise and financial-banking reform programmes, he added.
To lure more FII, the Dragon Capital director suggested that Vietnam should scale up its financial market by developing the stock market and combining the equitisation of state-owned enterprises with listing their shares. The country should also build a healthier and more transparent market and improve its laws, he said.
In the next few years, the stock market in Vietnam will see further robust growth, Netty Ismail and Stephen Engle quoted economic specialists as saying in an article entitled “Sell-offs could drive market in Vietnam” published in the International Herald Tribune on August 31.
The paper quoted Spencer White, Hong Kong-based Asian strategist at Merrill, as saying that, “we are going to see a very significant transformation of the Vietnamese stock market over the next two to three years.”
Kelvin Lee, head of investment banking at VinaCapital Group in Ho Chi Minh City, which manages $600m of investments in Vietnam, said that sales of shares in state-owned companies could accelerate stock market growth as the government seeks to sharpen the ability of those firms to compete after Vietnam joins the WTO.
In a recently-released report, HSBC encouraged investors to dip their toes into Vietnam’s dynamic equities, citing a number of catalysts that will bring local stocks into the spotlight over the next few months.
The annual summit of 21 Asia Pacific Economic Cooperation (APEC) leaders will take place in Vietnam for the first time in November and US President George W. Bush may visit Vietnam on this occasion, the second Vietnam visit by a US president. The government has already equitised almost 3,000 companies and it has done 600 already this year. It plans to complete this process, including the equitisation of all state-owned banks by the end of 2009.

These equitisation schemes include at least two banks, an insurance company, the electricity utility and two or more mobile phone companies, each of which could be capitalised at $1 billion or more.

This will increase the Ho Chi Minh City Securities Trading Centre market capitalisation to $9-10 billion from the current $2.8 billion.

The report names some 30 corporations, which will list on the stock market, including BIDV, Vietnam Insurance Corp. (Bao Viet), Bao Viet Securities, Binh Thuan Hydropower Plant, Electricity of Vietnam (EVN), Vietnam Airlines, Viettel, and VMS MobiFone.

A new securities law will come into force in January 2007 and the Ho Chi Minh City Securities Trading Centre will change name and operate as the Vietnam Stock Exchange for the first time.

The last element to make Vietnam equities attractive is that the cap on foreign ownership of shares, currently 49 per cent except for the banks and unlisted companies, which is 30 per cent, could be raised to 100 per cent as early as the end of the year or early next year, although the Government may retain limits for some sensitive sectors such as finance and telecoms.

The report also says if Vietnam had some five or six stocks each with free float market capitalisation of $1 billion or more, Morgan Stanley Capital Incorporation, or MSCI, would likely consider its inclusion.

The Vietnamese market is currently equal to 5 per cent of gross domestic product (GDP), compared to an average of 71 per cent for the Philippines, Thailand, and Indonesia, said the report. The local stock market should grow to reach a percentage of GDP similar to that in other Asian countries.

Source: Vietnam Investment Review