VIETNAM'S STOCK MARKET
Vietnam’s stock market was launched in 2000 yet as of June 2005, there were approximately 27 listed companies with a combined market capitalization of around $300 million. As a percentage of GDP, Vietnam’s stock market capitalization is less than 1%, compared to 40.2% for China, 33.7% for Indonesia and 70.4% for Thailand. However, we believe there are reasons for the slow development of Vietnam’s stock market, which relate to managers' perception of hidden costs associated with transparency and strong internal controls, and which are unlikely to change significantly until tax enforcement is improved and internal controls at state owned and equitized companies is improved, so as to make it difficult to siphon value out of those companies.
VIETNAM'S FOREIGN DIRECT INVESTMENTS
Interestingly, Vietnam’s Foreign Direct Investment (FDI) as a percentage of GDP, at 4.1% in 2004, is higher than in any other country in the region, including China. This can be attributed to:
- Vietnam’s high political stability and relative safety;
- low labor costs;
- relatively strong work habits of the labor force;
- long coastline with a large number of ports;
- continuous improvements in the regulatory environment for foreign direct investment; and
- sustained annual GDP growth rates of over 7% since 2001, including a rapidly growing spending power in the domestic market.
In China, FDI seems to have been more successful than portfolio investment over the past 10 years. While FDI in China has continued to grow with China’s GDP, we note that the MSCI China Index (of listed companies, weighted for free float) has delivered a negative 7.7% annual return for the 10 years ending 30 May 2005[3]. We believe that in China passive investors in listed companies may not be capturing the value that should be created by the growth in the country’s GDP. We believe that the situation in Vietnam may be similar for passive portfolio investors considering the history and profile of listed companies in Vietnam is quite similar to China.