Vietnam has hung a light out for factory investment in Asia. The Southeast Asian country keeps costs and entry barriers low for foreign ventures. But another aspect of investment compares more to power outages: on, off, on again and now off once more. Officials have considered since 2013 opening many of Vietnam’s 865 listed companies to majority ownership by foreign portfolio investors but still haven’t powered up and now people with the capital are wondering why. The old foreign investment limits stop at 49%, a vestige of Communist Vietnam’s fear that foreigners would take control of plum enterprises.
The quick history: In 2013 the state wanted more capital in the market to raise liquidity and repeat that year’s overall share price gains of 20%, the highest in Southeast Asia. But a year later the plan stalled as policymakers struggled with how to protect state interests in the top firms. In June last year the government issued a decree saying listed companies could allow foreign investment up to 100% subject to conditions that would emerge later. As investment specialists on the ground tell it, no one has publicly rolled out those conditions, such as saying which sectors are off limits and what percentages of foreign investment other sectors can allow.
Offshore institutions with underweight or exploratory positions in Vietnam were hoping to buy into shares of its best managed companies for a stake in the economy that’s growing steadily at more than 6% per year. Foreign funds make up about 15% of the market now with little growing space without a boost in ownership limits.
“The government must accelerate their steps to carry into effect the scrapping on foreign ownership limits within this year or we fear their lethargic promises will start falling upon deaf ears,” says Oscar Mussons, international business advisory associate with consultancy Dezan Shira & Associates in Ho Chi Minh City.
Appointment of a new government expected between May and August might embolden policymakers to produce more lists of approved sectors. Ministerial-level officials have held back, one theory goes, since the decree came out because they didn’t know who would win a struggle for the job of Communist Party head, who would in turn steer policy. The incumbent will keep his job for another five years, the party decided in January.
Does the light go back on later this year then? Sort of maybe, and here's why:
Some expect a flicker during the early 2016 rush of annual general meetings, when company boards could discuss allowing in more offshore capital. But companies might cringe at the idea of foreign control despite the allure of quick capital. They would need to use international standards to compile financial reports, meaning do them with more precision and with regular deadlines.
The government is already letting individual companies in a few approved sectors decide whether they want majority foreign ownership. Companies must get apply one by one to the State Securities Commission, people in the financial sector say. Only three companies have made it clear they’ve extended their foreign ownership limits past 49% since a financial services firm led the way in September. “It should be case by case basis, not a one size fit all approach,” says Phuong Hoang, investment advisory director with SSI Research in Hanoi. “We think the wait-and-see approach would be a typical view by foreign investors.”
