Vietenemese people in front of a stock market board

Vietnam's Biggest Investor Is Quietly Quitting The Market

October 2016

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A sovereign wealth fund in Vietnam announced this year it would divest from holdings among 120 listed companies. That plan, part of the government’s longer-term scheme to pull out of listed firms, will let the free market take its course instead of taking cues from the Communist state and allow companies involved to operate more efficiently. But the process just might take a while.

Divestment by the State Capital Investment Corp. would free up shares for ever-eager foreign investors. Offshore funds see Vietnamese stocks as investments in the Southeast Asian country’s fast-growing, export-led economy and surging middle class.

“We think this government understands what a stock market is for,” PXP Vietnam Asset Management, a Ho Chi Minh City firm with total assets of $175 million, says in a newsletter. “Whether this illumination came as a result of budget revenue holes caused by plunging oil prices or emerging market status envy matters not. We think they get it now.”

Collection of revenue from state-owned enterprises, particularly petrochemical firms, is slowing due to a 42% drop in crude oil prices now versus a year ago, Vietnam-based SSI Research says.

Vietnamese stocks, particularly in blue chip companies such as local dairy producer Vinamilk, have generated particular interest offshore since last year when the government starting allowing them to raise foreign ownership limits past an old cap of 49%. Foreign funds already made up about 15% of the market totaling 865 listed firms.

But the State Capital Investment Corp., SCIC for short, has slowed down its divestment work, which state media say will eventually come to $278.06 million. Among the target companies were 10 blue chips and the fund has moved on only two: information technology giant FPT and Sa Giang Import and Export Corp. SCIC holds 6% of FPT and half the import-export firm.

Vietnamese media tip SCIC eventually to divest from more companies, including the major-majors such as Vinamilk. Things often take longer than the market wants in Vietnam – ask anyone who waited for approval of lifting of foreign ownership limits.

In this case, SCIC and the Vietnamese finance ministry may be trying to figure out how to make these exits without jolting valuations. The sovereign wealth fund completed 12 divestments in 2014 and 2015 “normally at the higher-than-ceiling price on the contract day,” SSI Research says.

 

This article was written by Ralph Jennings from Forbes and was legally licensed through the NewsCred publisher network.

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