Vietnam Eases Foreign Ownership Caps as MSCI Upgrade Sought

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Vietnam eased curbs on foreign ownership as the government seeks to boost inflows to the nation’s stocks and an upgrade to emerging-market status.

Overseas investors can increase holdings in “a number” of industries to 100 percent from 49 percent effective in September, according to a government decree published late Friday. Other companies will keep their 49 percent limits, while holdings in sectors that are governed by separate ownership regulations such as banks will remain at 30 percent, according to the decree.

The restrictions have been “a major hurdle” to developing the capital markets and deterred many foreign investors, said Andy Ho, chief investment officer of Ho Chi Minh City-based VinaCapital, which manages about $1.4 billion in assets.

Money managers including Templeton Asset Management and Dragon Capital Group Ltd. have said they’re unable to buy as many equities in Vietnam’s $58 billion market as they want because of the caps. The plan to ease restrictions was delayed last year after originally being proposed in 2013.

Vietnam is building its case for an upgrade to emerging-market status from frontier classification by index provider MSCI Inc., the State Securities Commission said in October. An emerging-market ranking, which would increase the pool of eligible investors for Vietnam, requires “significant” openness to foreign ownership and ease of capital flows, as well as minimum levels of liquidity and market value, according to MSCI’s website.

Consumer Companies

The benchmark VN Index has gained 8.5 percent this year, outperforming the MSCI Frontier Markets Index, which has declined 5.9 percent. The Vietnamese gauge trades at 12 times projected 12 month earnings, versus 9.9 times for the MSCI gauge. The VN Index rose 1.7 percent at close today, its steepest advance since May 20.

“As soon as the limits are raised, you will see a rush to buy blue chips,” said Patrick Mitchell, the head of institutional sales at VinaSecurities JSC in Ho Chi Minh City.

FPT Corp., the nation’s biggest listed technology company, and Gemadept Corp., a freight company, are among 30 companies where foreign ownership has already reached the current limit, according to Hanoi-based VNDirect Securities JSC.

Consumer stocks such as Vietnam Dairy Products JSC, or Vinamilk, will be boosted, said Kevin Snowball, the chief executive officer of PXP Vietnam Asset Management in Ho Chi Minh City.

Foreign investors have added a net $156.6 million to their Vietnam holdings in 2015, set for the 10th straight year of inflows. Vietnam also plans to sell a record amount of shares in state-owned companies in 2015, the finance ministry said in March.

According to Friday’s government statement, a foreign cap of 49 percent will still apply to sectors which need certain “conditions,” according to the decree, which didn’t give specifics. Sectors with specific ownership regulations, such as banks, in which total foreign stakes are limited at 30%, would remain unchanged. All other equities would have no limits, unless restricted by companies themselves.