VNStockNews.com - Foreign indirect investment capital flows into Vietnam are strongly rising and could one day outperform foreign direct investment levels.
Nguyen Doan Hung, the State Securities Commission’s (SSC) deputy chairman, said foreign indirect investment (FII) players had returned to Vietnam since the second quarter of 2009. Around 13,000 foreign investors, including 1,200 institutional ones, are trading Vietnamese securities.
With foreign trading volumes making up 20-25 per cent, FIIs have helped increase market liquidity, creating demand for the government’s share sales in state-run enterprises and G-bond sales. FII investors had so far poured around $6 billion into Vietnamese securities, said Hung.
As the debt crisis in Greece may spread to other Eurozone economies, portfolio funds have been flowing back to Asia, especially South East Asia, with regional countries having shown a strong recovery from the global economic downturn, offering high returns and low risks.
“With the current developments, I think FII flows might have a bigger role in growth and even replace the role of foreign direct investment (FDI) in later years in Vietnam,” Hung told “Foreign Investment in Vietnam in post-Economic Crisis” workshop in Hanoi recently. He, however, did not give a timetable for such changes.
Despite negative impacts from global markets, foreign investors have remained net buyers of nearly VND5.337 trillion ($281 million) in Vietnamese shares in the year to date, excluding bond values, according to Ho Chi Minh Stock Exchange statistics.
“With the recovery looming large, developing markets including Vietnam will have an opportunity to attract foreign capital,” said Vu Thanh Binh, BIDV Securities Company’s (BSC) chief analyst.
Le Van Chau, chairman of Vietnam Association for Securities Investment, said FII was on the rise in Vietnam, indicating that Vietnam remained an attractive destination for global investors. “If the country has proper policies and better incentives, they will invest for the long term,” said Chau.
Professor Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises, said that the impacts of FII were stronger than FDI, but FII was more volatile while FDI remained stable. Vietnam has attracted around $150 billion worth of FDI projects, while the FII figures in comparison were still small.
Mai said international investment inflows to Vietnam, direct or indirect, greatly contributed to meeting increased demands for socio-economic development investment capital. However, he noted, many problems had arisen and diligent foreign investment assessment was needed. “The competition in attracting foreign investment capital is more fierce. This creates a great challenge to Vietnam,” Mai said.
Vietnam faced challenges in managing FII to avoid its sudden reversal, which could threaten the local financial system and result in an payment imbalance, said Hung.
He added that the country needed to further develop its financial system, increase stock market scale and encourage long-term institutional investors such as retire funds and insurance funds.
FII inflows into Vietnam were $1.31 billion in 2006 and surged to $6.24 billion in 2007, then the outflows were $578 million in 2008 and estimated at $500 million in 2009, according to unofficial sources.
