Foreign portfolio investment (FPI) flowed strongly into Vietnam after the country joined the WTO, and then flowed out during the 2008 global economic crisis. In the last months, however, FPI capital has been heading toward Vietnam again.
Nguyen Ngoc Canh, Director of the International Cooperation Department under the State Securities Commission (SSC), in an interview with Dau tu chung khoan, explained that, in recent years, FPI capital flowing into Vietnam is rising. He estimated that the total value of Vietnam’s securities held by foreign investors may reach $8 billion.
Dau tu chung khoan (DTCK): What do you think Vietnam should focus on in the time to come to attract more FPI?
Nguyen Ngoc Canh: FPI flow to Vietnam in recent years tends to increase rapidly, especially since late 2006, when Vietnam officially joined the World Trade Organisation (WTO). FPI capital flow increased strongly in 2007, which accounted for more than 50 percent of total foreign investment capital. The capital flowed out of Vietnam in the 2008 global financial crisis, which had a bad effect on macroeconomic stability. After that, the stock market witnessed a net inflow of FPI capital. The total value of securities held by foreign investors may reach $8 billion.
To attract more FPI capital, management agencies need to focus on improving investment procedures, minimizing waits and simplifying formalities on trade code registration, plus setting clear regulations on information that needs to be exposed and documents that need to be notarized. Besides, it is also necessary to create high quality commodity supplies for the stock market and upgrade the infrastructure for the whole market. Especially, we need to stabilize the monetary market to ensure that the Vietnam dong will not see big fluctuations.
DTCK: As far as I know, the Ministry of Finance and SSC are considering open-end investment funds. How will this decision affect FPI capital?
Canh: The Ministry of Finance and SSC are going to promulgate a circular guiding the setting up of open-end investment funds. In the post-crisis period, foreign investors are trying to restructure their investment portfolios. Therefore, when we allow open-end funds, FPI capital can flow into Vietnam more strongly. Open-end funds are very popular in the world, about 90 percent of total funds.
DTCK: How about the role of intermediary organizations on the stock market in attracting FPI?
Canh: We are encouraging foreign securities service providers who have prestige, financial capability and high professionalism to invest in Vietnam. Under the plan to open the stock market, Vietnam will gradually remove limitations on the foreign ownership in certain fields in which the State does not need to hold controlling stakes, including securities, to attract foreign investments.
DTCK: What will Vietnam do to manage FPI capital in the most effective way and minimize capital withdrawal?
The upgrading of FPI management can be done through control over the inflow of FPI capital and regulation on maximum foreign ownership ratios in Vietnamese companies. In the future, the ratio should be expanded to 100 percent in normal fields.
I think that Vietnam can consider the China model in granting quotas for investment in stocks and fund certificates as tools to manage FPI capital. Capital withdrawal in the stock market must follow current laws on foreign exchange management.