Early this year, HSBC predicted that 2009 may be a "difficult year" for Vietnam's stock market. In contrast, Ernst & Young's Global Megatrends 2009 reported that "economic power is moving from developed to emerging economies". It also identified countries as diverse as Egypt, Iran and Vietnam as having the potential and conditions to rival Brazil, Russia, India and China. With this backdrop, there is greater possibility that 2009 may be a good year for Vietnam. One of the leading securities company in Vietnam, Thang Long Securities Company reported early this year that Vietnam's securities market may be considered "attractive in the context of low price-earnings ratio and low market capitalisation on GDP." If investors grab the opportunity to invest in Vietnamese stocks given the current low price-earnings ratio and eventually sell at high prices, then Vietnam can be considered a good market for investment in 2009.
However, market commentators such as Jim Hasset, Chairman of Ernst & Young Asia Pacific also pointed out that in order to create attractive conditions for the market to recover in 2009 and to gain long term stability, the Vietnamese government must apply the right measures including pushing up the equitisation process. This way, public listing of big corporations in important business sectors in Vietnam will hopefully attract the attention of foreign investors.
Against this backdrop, a new regulation has recently been issued by the Ministry of Finance Regulating the Activities of Foreign Investors in Vietnam's Securities Market (Decision 121/2008/QD-BTC of December 24 2008 and effective February 1 2009). Decision 121 provides the guidelines for foreign investors investing in Vietnam's securities market.
Under this new Decision, foreign investors comprise (i) foreign citizens including overseas Vietnamese; (ii) entities incorporated under a foreign law, and their branches operating in Vietnam; (iii) 100% foreign-owned enterprises incorporated in Vietnam; and (iv) offshore investment funds and investment funds established under the laws of Vietnam with 100% foreign owned capital.
Decision 121 generally provides two ways in which foreign investor may invest in listed and unlisted securities in Vietnam. The first one is through a direct investment and the other one is to make investment via a fund management company. Previously, some foreign investors wanted to avoid the foreign ownership limit by way of making their investment via an investment fund management company in Vietnam. However, it is not clear if that option is still available under Decision 121.
Some important regulatory requirements under Decision 121 include obtaining a trading code and opening an indirect investment capital account. This means that foreign investors who invest in securities (listed/unlisted or participate in securities auction) are required to obtain a trading code, to maintain a bank account inside Vietnam and to use money on that onshore account for securities investment.
Under Decision 121, foreign investors are not allowed to authorise any individual or entity for asset management operations such as selection of securities, quantity of securities, pricing and timing for securities investment except for fund management companies licensed in Vietnam. Decision 121 also requires an investment fund company and its foreign investor to enter into an investment agreement with those provisions. Accordingly, offshore investment banks would need to pay more attention to those requirements of Decision 121.
Decision 121 also imposes reporting obligations wherein securities companies, fund managers and transaction representatives are required to make periodic reports on the securities activities of foreign investors.