Foreign funds crowd nation’s doorstep - Vietnam

Foreign funds crowd nation’s doorstep

by Pham Hoang Nam

Nearly 70 foreign funds are expected to begin operating in Viet Nam soon, announced organisers of a recent finance seminar.

It is easy to understand the attraction in light of the fact that last year, two foreign funds in Viet Nam paid an incredible 140 per cent return to their investors and a 60 per cent return to their real estate investors.

According to some estimates, the country’s three largest foreign funds –Dragon Capital, VinaCapital and Indochina Capital–are worth a total of US$4 billion.

Additionally, VinaCapital has just toured international finance centres to mobilise more $250-300 million for their new infrastructure fund.

The unexpected growth of such funds has forced other organisations to define their position in Vietnamese market.

Mekong Capital has just mobilised $100 million for its third fund, the Azalea Fund, a significant increase ver their first and second funds worth $18.5 million and $50 million, respectively. The Azalea fund will focus on investments in equitised State-owned companies which are preparing to list on the stock exchange.

A $200 million Japanese fund is waiting for permission from the State Securities Committee, while Chinese and Hong Kong-based finance investment and consulting companies have also arrived in Viet Nam. They stand ready to buy shares of blue chip State-owned companies at upcoming auctions.

Finance experts predict that this year, there will be an additional $2 billion in foreign indirect investment inflows into Viet Nam. The capital would continue to focus on the stock market, where short-term profits are considered easy, while long-term investment might focus on the real estate market.

However, the appearance of some foreign funds pouring their investment into private enterprises for the long term, such as Mekong Capital and BankInvest, is considered a highly positive development with long-term benefits for both investors and the economy as a whole.

Experts have said that these funds have encouraged the long-term development of the private sector, which should act as a stabiliser and supporter of the Vietnamese economy in the future.

"The arrival of foreign investment funds and the level of their predicted demand is expected to bolster the stock market," said Trinh An Huy, President of the Stock Investors Association.

Viet Nam’s securities market was described as being ‘hot’ during late 2006 and early 2007. However, share prices experienced a correction in March, bringing the VN Index to below the 1,000-point mark by mid-April.

Businesses share beefs

The development of several key laws, including the Enterprises and Investment laws, reassured foreign investors that Viet Nam was indeed a safe place in which to invest, said Sin Foong Won, Viet Nam country director of the International Finance Corporation (IFC), on the sidelines of the Viet Nam Business Forum last Wednesday.

However, foreign investors at the forum also expressed concerns about complex regulations and administrative procedures and complained about the slow speed at which Viet Nam has begun implementing its WTO’s commitments.

Tran Quoc Khanh, a senior official from Ministry of Trade, said that the nation was seriously implementing its commitments. Khanh asked foreign investors to submit complaints and suggestions to the ministry for consideration.

Meanwhile, a rosier picture was presented by a survey conducted by the Japan External Trade Organisation (JETRO), in which over 75.5 per cent of Japanese manufacturers already operating in Viet Nam chose Viet Nam as the best place to invest in over the next 5-10 years.

Growth could spark inflation

The World Bank and the in-ternational aid donors’ Consultative Group for Viet Nam has released a report on the Vietnamese economy that predicts Viet Nam’s GDP would grow at 8-8.5 per cent this year.

The World Bank also warned that the country could face increasing inflation.

World Bank warnings came true in May, as the consumer price index rose 0.77 per cent, higher than the finance ministry’s Market Management Department’s 0.5 per cent expectation.

According to some experts, the unexpected inflation was based on higher petrol prices in early May. Though the rise in petrol price was only 0.57 per cent, prices on other goods rose due to speculation.

Another reason offered for the heat-up in inflation was that the import price of many industrial materials also increased. Based on the estimates from the International Monetary Fund (IMF), Viet Nam has suffered more than $835 million in losses due to inflationary pressures worldwide. — VNS