Vietnam flings open its doors to foreign investors

Foreign stockmarket investors have always had trouble getting their hands on Vietnamese stocks. But that's changing. The government has decided to lift the legal limit on foreign ownership of listed firms, currently capped at 49%.

In the next few days it is likely to rise to 60% or 65%, while some analysts are hoping that the limits will be removed completely. Sectors the government considered strategic, such as banking, airlines and defence, will not offer controlling stakes to investors, however.

This is a major step forward, says VinaCapital's Andy Ho, who runs the Vietnam Opportunity Fund. Without much foreign money, the market has suffered from a lack of liquidity, which has seen it trade at a 25%-35% discount to its regional peers.

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The new rules will encourage more state-owned firms to list, clearing the backlog in the government's privatisation programme and enticing more foreign investors, who currently only account for 15% of daily turnover. A likely rise in mergers and acquisitions will be an extra attraction. As liquidity improves, volatility should fall.The big picture, meanwhile, is encouraging. GDP grew by 6.3%year-on-year in the second quarter.

The hangover from the China-style bank-lending binge has gone. Manufacturing is doing especially well Vietnam is attracting foreign firms seeking a low-cost alternative to China, notes Capital Economics. A near-100-million population bodes well for long-term consumption. The Vietnam Opportunity Fund (LSE: VOF), which invests in unlisted companies and real estate as well as equities, is on a 20% discount to net asset value.