Warning Against Leaning
South Korean investors accounted for 40 percent of foreign ownership of Vietnamese stocks last year. As the Ho Chi Minh Stock Exchange's main index, or VN Index, has made more than 40 percent of profits a year, money rapidly flowed into the Vietnamese market. There have been rosy prospects for the Vietnamese economy as a whole but there are also growing concerns over too much weight on the emerging market which is vulnerable to external variables.
According to the Ho Chi Minh Stock Exchange on January 7, foreign investors net bought US$1.08 billion (24.4 trillion Vietnamese dong (VND) or 1.14 trillion won) worth of Vietnamese stocks in 2017. South Korean investors invested 461.3 billion won (US$433.96 million) in 11 Vietnamese funds set up in the country, except for exchange traded funds (ETFs), over the same period. The figure took up 40.3 percent of the total foreigner investments in Vietnamese stocks. The upward trend in the VN index, which surged over 40 percent in just one year, was driven by South Korean investors. While foreigners net sold US$3.51 billion (79.7 trillion won VND or 3.74 trillion won) worth of Vietnamese stocks in 2016, South Korean capital of a whopping US$294.44 flowed into the Vietnamese stock market.
With the VN index having been rising 1 percent every day from the beginning of the year, South Korean investors tend to put too much weight on Vietnamese funds. According to fund appraiser ZEROIN, Vietnamese funds accounted for 12.1 percent of 3.81 trillion won (US$3.58 billion) that flowed into the total overseas equity funds last year. By country, they surpassed 374.6 billion won (US$352.56 million) of Indian funds and 330.2 billion won (US$310.78 million) of Southeast Asian funds. The amount of investments in Vietnam exceeded 500 billion won (US$470.59 million), including 59.7 billion won (US$56.19 million) invested in Korea Investment Management Co.’s KINDEX Vietnam VN30 ETF, which is the only Vietnam ETF that linked to the VN index in South Korea. To be sure, that is not to say all the investments in Vietnam funds bought Vietnamese shares. However, the amount of net buying will go up further considering the fact that most Vietnamese funds are recently aggressive in buying shares.
The problem is that losses snowballed after the VN index crashed as the similar situation developed in 2006. At that time, the first Vietnam fund was launched in South Korea due to the possibility of long-term growth potential and undervaluation of Vietnam as it is right now. The initial earnings rates surged more than 40 percent and a monthly average of US$200 million (212.54 billion won) of money flooded in until March of the following year, creating the Vietnam fund frenzy. South Korean funds controlled the Vietnamese stock market in that the amount of foreign net purchases totaled US$140 million (148.68 billion won) at that time. The VN index posted 4 trillion won (US$3.77 billion) in market cap for 80 companies at the end of 2006 and 10.6 percent of them came from South Korean funds. However, the VN index recorded the highest point at 1,170 in February 2007 and then the lowest point at 234 in February 2009. As the VN index plummeted because of the global financial crisis in the United States in the second half of 2007, Vietnamese funds also continued to go downhill.
However, others say that it cannot make a simple comparison with the then Vietnamese stock market at this point in time. The size of VN market caps grew 25 fold from 4 trillion won (US$3.77 billion) to 100 trillion won (US$94.15 billion) throughout the last decade. In addition, the portion of South Korean funds in VN market caps dropped from some 10 percent to a mere 1 percent. An official from the asset management industry said, “Vietnam, which shows positive growth indicators, is a promising investment. It should take into consideration of the special characteristics of the market that has many new IPOs in the process of privatizing state-run firms.”
As the price of new large listed stocks and stake–selling stocks showed an upturn in the Vietnamese stock market in the last two to three years, the Vietnamese government revised an edict to revitalize the IPOs of state-run companies at the end of last year, strengthening the base of policies to vitalize the stock market.
However, there are also concerns over bubbles in the arrangement of corporate value. An official from IPO at a securities firm said, “Domestic investors’ investments should pay attention to the fact that new listed companies that have led to the rise in Vietnamese stock prices have a higher corporate value than normal.”