Draft bill sets clear parameters for portfolio investment

Foreign investors must conduct all stock transactions through a single dong account opened with a licensed bank, according to a Ministry of Finance plan submitted to the government for approval last week.

Under the plan, foreign investors can carry out transactions directly or authorize investment fund management firms to do so on their behalf.

These foreign investors must register with the State Securities Commission (SSC) or the Vietnam Securities Depository, the draft bill states.

Investors must also place their orders through an authorized securities company, according to the proposed regulation.

The bill also states that while individual investors must conduct stock market transactions in dong, foreign financial institutions’ representative offices in Vietnam may conduct transactions via foreign currency accounts opened at licensed banks.

All investors must report to the SSC every month, quarter and year, according to the draft.

The new regulation is expected to be approved in the second quarter this year.

Foreign investors who have already been granted a stock transaction code must then go through any additional procedures dictated by the new rules.

Representative offices can only invest for their mother companies and cannot conduct transactions for individuals.

Individuals must invest for themselves and cannot do so for others.

Therefore, investors who have previously authorized other individuals or representative offices to act on their behalf must terminate the authorization and report to the SSC.

Representative offices authorized by mother companies to place stock orders must begin reporting to the SSC once the bill passes.

Better late than never

The National Financial Supervisory Committee’s newly-appointed chairman Le Duc Thuy said the country should have developed a framework to manage, supervise and analyze its capital flows a year ago when Vietnam joined the WTO.

Since then, foreign portfolio investment has flooded the country rapidly.

In the first two months of this year only, indirect foreign investment reached US$760 million, slightly lower than the $970 million in foreign direct investment and $1.5 billion in overseas Vietnamese capital inflows.

As of February, foreign investment in the stock market topped $8 billion with around 10,000 accounts, 640 of which were opened by foreign institutions.

A considerable number of these institutions’ accounts are offshore investment.

A total of 60 foreign investment funds are investing in the local stock market in addition to dozens of hedge funds.

The lack of a comprehensive legal framework to regulate foreign stock investment has prompted many tofear what would happen if foreign investors withdraw from the exchange.

Now that the government is developing new rules to govern capital inflows, experts say more needs to be done to increase portfolio foreign investment.

Compared to direct foreign investment, indirect investment accounts for just 2-3 percent of Vietnam’s GDP, which experts say is still modest.

The SSC’s chairman Vu Bang said that other than technical solutions such as increasing taxes or imposing fees on foreign investors, the country needs a comprehensive strategy to foster healthy economic growth because stock investors often cut and run when the economy stumbles.

Director of the SSC’s Stock Investment and Research Center Dao Le Minh said language barriers and the inaccessibility of information were hampering foreign investment in the stock market.

Minh said there are only a few stock companies that can provide investment information in much-needed foreign languages like English, French, Chinese, Japanese or Korean.

The country should also develop a system to rank the financial abilities of state-owned and joint-stock banks, he said.

Minh added that the same should be done to evaluate the abilities of major state-owned businesses currently going to public as well as companies already listed on the stock exchange.

Source: TBKTSG