Big institutional investors have become too tired of Vietnam’s stock market, which can be seen in the big offered discounts, while more and more capital withdrawal plans have been drawn up.


The continued liquidity decreases since 2010 have been attributed to the lack of “big players” on the market, the same situation which was once seen in prior to 2005. Analysts say most of the institutional investors have left the market.
Dominic Scriven from Dragon Capital, the oldest institutional institution on Vietnam’s stock market, said that the high discount rates of investment funds’ certificates have sent a message about the dissatisfaction of domestic and foreign securities investors.
The lackluster stock market has led to the fact that investment funds cannot raise new funds, while existing funds are likely to shut down.
With the 17-year experience of joining Vietnamese stock market, the representative from Dragon Capital has noted that for the last two years, the stock market has not been regulated by institutional investors, while individual investors are the main players on the market.
Prior to 2005, Vietnam’s macro economy performed well with the consumer price index (CPI) less than 8 percent and GDP growth rate at 7-8 percent. However, at that time, institutional investors had not joined the market, while the market did not play the role of a capital mobilization channel.
In 2007-2008, the macro economy performance was also good, while a lot of activities advertise the stock market were launched. The reports by international investment institutions helped attract a big amount of institutional investors. Foreign invested capital kept flowing in masses. Experts believe that this was the most prosperous period of Vietnam’s stock market.
After 2008, the macro economy has shown uncertainties with high inflation and tightened monetary policies.
The information that the State Bank of Vietnam cut the open market operation (OMO) interest rates recently has caught the special attention from the international community. The list of the 10 most read articles of Bloomberg included the one with the comments of international institutions about Vietnam – the economy with high inflation, but tries to ease interest rates.
According to Mr Scriven, cutting the OMO interest rates is really a reasonable measure for now. However, the problem is that the media campaign was not good enough to explain to the public. As a result, foreign analysts consider the OMO interest rate cuts as a move to loosen the monetary policies too soon in Vietnam.
The representative from Dragon Capital has also said that though Vietnamese stock market now has attractive valuation levels, the high discount rates have made it very difficult for foreign investment funds to attract new cash flow.
Even the funds listed on foreign bourses are also seeing the discount rate of over 30 percent on average, while the rate is up to 44 percent for some funds. Meanwhile, the rates of 35-40 percent have been calculated for the funds listing in Vietnam.
The big discounts show the message of dissatisfaction of foreign institutional investors. In such circumstances, it is nearly impossible to raise new funds.
“It is now the periodic time, when investment funds seriously think about whether they should stay. We once allowed shareholders to withdraw capital gradually, about 10 percent, but this could not be implemented due to the weak liquidity,” he said.
“Our viewpoint is that if there is no measure to turn closed funds into open funds, at the upcoming shareholders’ meeting, 100 percent of them would vote for closing up the fund,” he continued.
Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, has also warned about the capital withdrawal of investment institutions.
The total value of capital to be withdrawn in 2012 has been forecast to reach 3400 billion dong. The figure would rise to 31,615 billion dong by 2013 before slightly decreasing by 2014 to 20,608 billion dong.
If most of the money of old institutional investors is withdrawn from Vietnam, the stock market would not be able to regain the sustainable growth if it only relies on individual investors’ money and new funds,” Nghia noted.