CIMB Principal Asset Management yesterday launched Thailand's first foreign fund investing directly in Vietnamese equities, with a target of double-digit annual returns based on Vietnam's annual economic growth, exceeding 6%.
Vietnam is the last frontier market in Southeast Asia and its government has set a target to drive the country's financial market forward over the next three years via four measures, said chief investment officer Win Prom Phromphaet.
These are privatising state-owned companies, integrating the Hanoi and Ho Chi Minh City bourses, unlocking a cap on foreign investment in local stocks and establishing a derivatives market.
"It is expected that more than 100 companies will be privatised over the next two years as the government needs to raise capital to reduce government debt, which stands at around 80% of GDP," said Mr Win.
The two Vietnamese bourses have low liquidity -- one-tenth of the Thai stock exchange -- and high price fluctuations as retail investors account for 79% of trade. Institutional investors and foreign investors make up much smaller portions.
Vietnam has two bourses -- Ho Chi Minh City Stock Exchange and Hanoi Stock Exchange -- with moe than 700 firms listed between them and combined market capitalisation of US$88 billion (2.94 trillion baht), representing 50% of Vietnam's GDP.
The price-to-equity ratio of Vietnamese stocks is, however, cheaper and has generated a high average return of 19% over the past five years compared with the 9% return for Thai stocks, he said.
"We expect shares for 200 companies to trade at local prices when a cap on foreign investment is unlocked and the premium price is removed," said Mr Win.
He said the fund will screen 200 shares based on market capitalisation, corporate size and liquidity, selecting 50 companies with good growth to conduct company visits.
Later on, the fund's portfolio will invest 70% in 15 companies selected from 50, with the rest going to exchange-traded funds to enhance the portfolio's liquidity.
But Mr Win said that the foreign equity investment fund is exposed to foreign exchange risks as the Vietnamese dong is not used widely and there are limited hedging tools for the currency.
The fund is restricted to quarterly purchases or four times per year and investors are restricted to sell on a semi-annual basis or twice a year.
"This mutual fund is suitable for investors who are able to park their money for 3-5 years without any obligations as this market needs time to grow in accordance with Vietnam's economy," said Mr Win.
The fund size for the initial stage stands at 1.5 billion baht and will be opened for subscriptions from Oct 2-11, with minimum investment capped at 50,000 baht.
