Tailwinds expected via foreign-funded activities

09:00 | 11/03/2020
Exchange-traded fund providers are offering more choices to foreign investors, at a time when portfolio rebalancing and global uncertainties could leave them high and dry.
tailwinds expected via foreign funded activities
Local bourses are expected to be more attractive for overseas investors seeking to get active in Vietnam. Photo: Le Toan
tailwinds expected via foreign funded activities

Exchange-traded funds (ETF) in Vietnam, which are managing a combined $649.8 million in net asset value, are expected to carry out several trading activities to rebalance the weight of stocks in their portfolios, according to the newly-structured indexes.

Last week FTSE ETF (FTSE Vietnam Index) announced its portfolio review, while VNM ETF (MVIS Vietnam Index) is set to release its balancing result this week.

The asset under management of the FTSE ETF sits at $257 million, while the VanEck Vectors Vietnam ETF sits at $416 million.

According to KB Securities, all the stocks listed in Vietnam examined in the MVIS index met inclusion criteria, thus it is likely there will be no newcomers or dropouts.

Shares of Sacombank also meet inclusion requirements but the number of Vietnamese stocks in the index has reached its cap of 25. Thus, Sacombank may only be included if MVIS gets rid of one of their existing members.

The weighting of stocks listed in Vietnam is also relatively low, below 70 per cent, so the rebalancing will likely increase the weighting of Vietnamese stocks to the 70-71 per cent level.

Shares of Vincom Retail (VRE), Vinamilk (VNM), Vietcombank (VCB), Hoa Phat Group (HPG), and Vinhomes (VHM) are predicted to be the greatest beneficiaries since they are likely to receive additional injections.

Last month, Hoa Phat Group revealed a larger-than-expected expansion plan that could double capacity at its Dung Quat steel complex. Particularly, the total planned investment is VND60 trillion ($2.6 billion), including VND50 trillion ($2.17 billion) of fixed capital and VND10 trillion ($430 million) of working capital.

Dinh Hinh Quang, senior analyst at VNDIRECT said, “Shares of Vinhomes, Vietcombank, Techcombank, Sacombank and Novaland might enjoy a stronger buying spree, while FLC Faros, Vinamilk, Phat Dat Real Estate, and Vingroup might experience a bumpy road.”

Faros Construction (ROS) – a subsidiary specialised in construction and heavy engineering of real estate provider FLC – has come under fire due to strong selling pressure from investors.

Failure to meet the minimum market capitalisation requirements has seen ROS deleted from FTSE Vietnam in last week’s portfolio rebalancing. The subsidiary has the lowest free-float-adjusted market capitalisation in the basket, falling short of the minimum requirement.

According to the company’s consolidated financial report for the fourth quarter of 2019, FLC Faros only completed about 56 per cent of the year’s after-tax profit target, and the value of receivables makes up nearly half of its total assets.

Other figures also showed that investors’ confidence fell to a low level, suggesting that ROS is unlikely to return to strong growth as it scrambles to rebound from its woes in the coming months.

Researchers at KB Securities believed that stocks of PetroVietnam Power, Thanh Thanh Cong-Bien Hoa JSC, Hoang Huy Investment Financial Services JSC, Novaland, and Phat Dat Real Estate have also slipped.

Thanh Thanh Cong-Bien Hoa has just approved VND1.2 trillion ($52 million) in convertible bonds scheduled for issue on March 16, with bonds carrying a 3.5-per-cent annual coupon and maturing in next three years.

Proceeds from bond issuance will likely be used to enhance its capital structure and debt payments, but investors did not show any signs of confidence in this plan, resulting in a stock’s drop of 3.6 per cent at the end of last week.

Elsewhere, there is no newcomer on the FTSE Vietnam All-Share Index, while TP Bank and Binh Minh Plastics have been excluded from the index.

Positive signals

A run of poor data from the firms might fuel concerns that the bloc’s anaemic recovery had ended, threatening an uncertain direction ahead.

However, Do Bao Ngoc, deputy general director at Vietnam Construction Securities told VIR, “The portfolio review would not thwart much of prudence of domestic fund raising, at least for now, as market valuations is reasonably attractive.”

Last week VFMVN DIAMOND went public after receiving the green light from the State Securities Commission.

The new ETF, harbouring 10-20 stocks which are traded at full foreign ownership limit (FOL), is expected to blow a breath of fresh air into local bourses.

According to Matthew Smith, head of research at Yuanta Securities, the newbie should attract reasonably strong interest from overseas investors seeking exposure to its mostly high-quality full-FOL constituents.

“Institutions might not flock to purchase a Vietnam-domiciled ETF, but VFMVN DIAMOND might lure more attention from retails, including the high-net-worth individuals,” added Smith.

“We believe an estimated $50-100 million in potential inflows is reasonable.”

TP Bank, Coteccons Construction, Gamuda Real Estate, Techcombank, and Khang Dien House Trading are likely to gain more traction, Smith noted.

Based on the estimation of VNDIRECT analyst Bach Phan Nhu, an added boost could come to VPBank, FPT, and Mobile World Group as the top three beneficiaries weighting at 15.3, 14.7, and 14 per cent, respectively.

Data from financial database FiinPro reveals that five of the stocks have at least some FOL room: Dat Xanh Group (5.6 per cent), Khang Dien House Trading (4.5 per cent), Coteccons (2.2 per cent), VietinBank (0.4 per cent), and Nam Long Investment (0.7 per cent).

Foreign appetite

Last week’s selling pressure pushed few banking stocks tumbled, namely Sacombank, Military Bank, ACB, Techcombank, VietinBank, and HDBank underperforming the broad market.

Foreign investors continued to sell with a net of VND11 billion ($478,000) on the Ho Chi Minh City Stock Exchange as of March 6.

Keeping an eye on how market mechanics operate under stress teaches investors a necessary lesson in how to protect themselves against future panics.

“With a growing number of central banks resorting to lower lending rates to stimulate growth, people would be drawn to gold as an ultimate store of value. Uncertainties from the wide-spreading COVID-19 outbreak also drove financiers to seek shelter in the precious metal, not the risky assets like stock” said economist Bui Quang Tin.

In a selloff, the creditworthiness of companies matters more, hidden pockets of leverage are revealed and established relationships can turn out to be broken.

For example, Vietnam’s blue-chip firm Vinamilk has not witnessed any noticeable impact on its domestic business so far because its products are generally consumed at home or school rather than in social settings. Vinamilk’s export growth, though remaining volatile, is expected to gain 9 per cent on-year in 2020.

Looking on the bright side, some overseas players such as Finland-based PYN Elite Fund have seized upon the selloff as a bargain, with VietinBank placing second in its portfolio with 9.57 per cent.

According to Andy Ho, managing director and chief investment officer at VinaCapital, astute investors seeking to participate in the secular growth of Vietnam, as well as foreign manufacturers looking to de-risk from China, are still actively looking for mammoth potentials in the country.

“In fact, with this downward pressure on public market, we are also finding more opportunities in listed firms at favourable valuations where we can take a meaningful stake and be involved in helping these businesses grow,” Ho told VIR.

Consumer-focused businesses and firms contributing to the ongoing spending on infrastructure, real estate and industrial development in Vietnam would likely catch the eye of overseas investors.

“Sectors such as healthcare, education, construction materials, and financial services are natural proxies for growth in this market. And there are many growing companies in this space,” added Ho.

By Luu Huong

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