Mark Mobius, executive chairman, Templeton Emerging Markets Group, Franklin Templeton Investments
There are many investment opportunities in Vietnam. We are currently accessing the market through a number of different strategies. For example, one strategy has invested in sectors such as food and services, as well as manufacturing.
In other strategies, we have investments in the food industry and in conglomerates participating in a wide range of activities, from property to banking. You can probably name any industry and we could find an opportunity in Vietnam.
With per capita income continuously rising over the past few years, one of the most exciting drivers for investment in Vietnam has been increased consumption. This growth can been seen in the expansion of supermarkets, hypermarkets and convenience stores all over the country.
There are significant challenges ahead before Vietnam can gain inclusion in the MSCI Emerging Markets index. First, there has to be more openness to foreign ownership and the lifting of foreign ownership limits. The barriers to this happening are connected to the willingness of the government to privatise and sell more shares in state-owned enterprises.
There is also a certain lack of clarity with regards to the distinction between local and foreign-owned firms. This is probably because of the distinction made between Vietnamese individuals who return from overseas with foreign citizenship and those individuals and companies who are not ethnic Vietnamese.
There is also the issue of equal rights for foreign investors. Much of the corporate law in Vietnam has not been available in English, and there does not seem to be any obligation to supply an official English translation of the law.
The final – and probably the most important – challenge is the need for foreign exchange market liberalisation. While capital inflows are easy, outflows are not and this creates a great deal of uncertainty for foreign investors.
In conclusion, while Vietnam is in pretty good shape when it comes to the stability of its institutional framework, it has to improve on the other three components used by MSCI to evaluate a market. There is no question that an upgrade and inclusion into the MSCI Emerging Markets index could result in more equity inflows for Vietnam. The recent experience of the UAE and Qatar in gaining emerging market status shows that once it is implemented, there is market appreciation.
Given that around $1.6 trillion in assets under management track the MSCI EM index, compared with about $16 billion tracking the MSCI Frontier Markets index, there is definitely the possibility of greater inflows if Vietnam graduates from frontier to emerging market status. Many index-tracking funds and ETFs are tied to that index and are forced to invest in the constituent countries in order to mimic it.
The article appeared in the November issue of the Citywire Private Wealth magazine.