More open policies to attract foreign capital into Vietnam’s securities market

The State Securities Commission (SSC), the country’s stock market watchdog, will study and submit to the Ministry of Finance more open policies for foreign investors with an aim to further support domestic firms in luring foreign capital, SSC Chairman Tran Van Dung said.

Public companies are expected to be subject to no restrictions on foreign holding cap.

The policies will be presented in a decree to guide the implementation of the revised Law on Securities, which is being considered for approval by the National Assembly, Dung revealed.
The revised Law on Securities, which will replace the 2006 Securities Law and its 2010 amendments, is expected to make Vietnamese firms more attractive to foreign investors as it covers many key issues related foreign investors, such as foreign holding cap in public companies and non-voting depository receipts.

Accordingly, public companies would be subject to no restrictions on the foreign ownership limit, unless otherwise prescribed by treaties to which Vietnam has acceded or a specialized law.

Notably, the foreign holding ratio in a public company, which operates in different sectors and subject to different foreign holding ceilings, must not exceed the lowest ratio among those prescribed for these sectors.

Foreign holding cap, the aggregate rate of voting shares and contributed capital amounts owned by foreign investors and economic institutions with foreign investors holding 51% or more of charter capital in a public company, securities trading organization, securities investment fund or securities investment company, are not specified in both the 2006 Securities Law and its 2010 amendments.

Meanwhile, Decree 60 issued in 2015 sets the maximum foreign ownership rate of 49% for public companies operating in trade and sectors subject to conditional investment and business.

The revised law will also mention for the first time the provisions related to the non-voting depository receipts (NVDRs) with an aim to stimulate foreign trading in the Vietnamese stock market.

According to foreign funds, though the current legal regulations allow foreign investors to fully own a local firm, the investors still face hindrances to pour funds into some conditional business lines, such as banking and aviation sectors with foreign ownership capped at 30%.
The implementation of NVDRs will counter the shortcoming, thanks to its capability to allow foreign investors to invest in listed companies which have foreign holding restrictions.

Nguyen Thanh Ky, secretary general of the Securities Trading Association, these changes are very important to help the Vietnamese stock market approach international standards and become more familiar with foreign investors.

Appealing market

Though global economic and trade slowdown are significantly affecting negatively many stock markets around the world and Vietnam is no exception, many foreign investors still believed the attractiveness and growth potential of the country’s stock market in the medium- and long-term.

According to Vuong Tuan Duong, deputy managing director of VinaCapital Vietnam Opportunity Fund Limited (VOF), valuations of Vietnamese shares are still low compared to other ASEAN countries and some other emerging markets.

He explained although the price-to-earnings (P/E) ratio of the VN-Index has increased in the past two years, it is still 12% lower than the average level of regional countries. By the end of August 2019, Vietnam's P/E was 16.7 times, compared to 20.2 times of Indonesia, 19.5 times of Malaysia, 17.9 times of the Philippines and 18.6 times of Thailand.

Besides, Vietnam is also attractive to foreign investment inflow thanks to the stability of its currency this year, Duong said.

In the next three or four years, Vietnam's stock market is deemed to have many positive factors that can lure foreign investors, such as the Government’s incentive policies on foreign capital attraction, and the possibility of Vietnam's stock market to be upgraded by Morgan Stanley Capital International and FTSE Russell.