Tag Archives: removal

Vietnam Holding On Vietnam’s Upcoming Removal Of Foreign Ownership Limitations

Vietnam will remove the foreign ownership limitation this September, allowing foreign investors to own 100% stakes of companies in certain industries. This event will serve as a major catalyst for increased foreign investment in Vietnam, and its future upgrade to an emerging market. I had the pleasure of interviewing Ezra Vontobel and David Kadarauch of Vietnam Holding Asset Management to gain further insight on the removal of the FOL in Vietnam next month. September 2015 marks the beginning of significant change for investment in Vietnam, as the foreign ownership limitation will be removed, allowing foreign investors to own 100% stakes of companies that were previously limited to 10-49% foreign ownership. Foreign investors have previously been willing to pay a premium of up to 20% for highly desired companies, such as Vinamilk, which have full foreign ownership. This event will serve as a significant catalyst for increased foreign investment in Vietnam, which is currently not the most sought after destination in Asia for foreign investment. I am personally very optimistic about Vietnam’s economic future, and believe the current potential of Vietnam is being relegated, as Asian hedge funds are focusing more on other countries in this region. While the removal of the FOL will not be fully implemented in September and the procedures for removal are still not entirely clear, this is certainly a significant step for Vietnam, and will help increase its status from a frontier to emerging market. There will still be restrictions within certain industries, such as the banking industry. Next month simply marks the initiation of changes necessary for Vietnam to allow foreign investors to have full ownership of companies. I had the pleasure of interviewing Ezra Vontobel and David Kadarauch of Vietnam Holding Asset Management to gain further insight on the removal of the FOL in Vietnam next month. Vietnam Holding is an investment company with shares listed on London’s AIM Market and Frankfurt’s Entry Standard. The company is a value investor that incorporates environmental, social, and governmental standards in investment. The company’s high emphasis on creating social value is further edified by the Vietnam Holding Foundation, which supports projects including arthroscopic surgery training and an orphanage based in Thailand. The company currently has approximately 20% of its assets invested in companies that are fully held by foreign investors, including Vinamilk, DHG Pharmaceutical, FPT Corporation, and Viconship. Dylan Waller : In addition to specific industries not removing the foreign ownership limitation, specific companies may also decide not to open up additional shares to foreign investors. Can you predict companies that may react in this manner, and the reasoning behind it? David Kadarauch : Each company’s controlling individual(s) will have his/her own views, based simply on attitudes to foreigners as much as anything else. Also, companies with a big SCIC stake might be less likely to move to a FOL rise. Waller : Do you anticipate a sharp rise in stock prices of companies fully held by foreign investors this month, as a result of domestic investors rushing to buy before the FOL is removed? Kadarauch : Case by case only – not generally. Waller: Do you see the removal of the foreign ownership limitation as a major catalyst for an increased entrance of investment from Asian hedge funds? Kadarauch : Yes – as long as progress on codifying the new law’s sector-by-sector guidelines is reasonably efficient, and results in a significant new percentage of market cap being freed up to foreigners. Waller : With the removal of the FOL coming in September, other investment opportunities may be relegated, as attention will be focused on companies that are currently fully held by foreign investors. As a value based investor with approximately 20% of your portfolio currently invested in companies fully held by foreign investors, do you see equal or even greater value in other high growth companies with lower valuation, such as Hoa Phat Group or Petrovietnam Drilling and Well Services? Ezra Vontobel : There are plenty of interesting stocks on attractive valuations in Vietnam’s ca. 700-company stock exchange. VNH owns the two you mentioned. Waller : Do you think that the Thai model of Non-Voting Depository Receipts will ever emerge in Vietnam, specifically as a solution for foreign investors to invest in companies in the banking industry? Vontobel : It would make sense to us for Vietnam to have such a system, but it doesn’t look to be currently on the table. We say it would make sense because ultimately foreign control is what FOLs are designed to prevent, and a well-designed NVDR system, where NVDRs could be voted by management in contested votes, would fulfill the objective, while freeing up the market for foreigners who don’t mind not having a vote (some, but not all). Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Sell SPY – Market Trouble Ahead On This Fed Path

Market relief following the resolution of the eurozone issue last month will be short-lived. Investors are now fully focused on the likelihood that the Fed will remove the “patient” language from its monetary policy statement next week that will allow for rate hikes thereafter. Over the next 6 months, as investors adjust their perspective to incorporate a rising cost of capital for American corporations, volatility should increase and a market correction is possible. A stock-pickers’ market should result, where favorable ideas can be bought cheaper, but the broader market security, the SPDR S&P 500 (SPY), should present more risk than reward. That market rally I was enthused about last month was short-lived. I would take long bets off the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) now, as volatility is back and a market correction is possible. Investors are now troubled about a rougher road ahead being laid by the Fed’s steps toward a tighter monetary policy. The adjusting market perspective is due to the shocking monthly jobs report just released last Friday. It surprised economists with frosty memories of winters past and expectations for slower economic activity. The all-too-good news has investors today focused on a perceived higher likelihood of Fed rate hikes sooner rather than later. This is a concern that makes for a rocky road ahead. Stocks should be volatile through the rest of the year, and should experience a correction or two. The likelihood of a clear trend-line higher this year is limited by the Fed’s plans. Last month, I correctly saw investor tensions built around fears of a Greece exit from the eurozone as overdone. I anticipated that the resolution I foresaw in Europe would allow pent-up capital that was clearly hidden away in U.S. treasuries, evidenced by historically low interest rates, to run back into stocks. It did, but not for long. You can see a clear move higher starting from February, before we hit a new wall of worry just recently. (3-Month Chart of SPY at Seeking Alpha) Today’s concerns are as important as the eurozone’s potential unraveling was. Today’s issues are more troubling though because Fed monetary tightening is on tap, and will drag on stocks for more than a moment. It cannot be resolved overnight like the Greece issue, despite the latest sensationalism and fear about Greece. For this reason, with Fed rate hikes on tap, I anticipate the possibility of a clear uptrend line for the SPY as very low for the rest of this year. And I believe a market correction or two is highly possible. What changed the recently rosy perspective of investors was the super-strong monthly jobs report just released on Friday. It showed nonfarm payrolls significantly higher than economists expected, and reported the unemployment rate further improved. Economists were likely remembering last winter when they were setting their estimates for the labor market, because this winter has been quite frosty for the Northeast. Boston is still buried in snow. It’s important to remember that labor data lags, and that first-quarter GDP could still disappoint. That’s especially true given that Q4 growth was just revised lower. The Federal Open Market Committee (FOMC) meets a week from Tuesday and issues its latest monetary policy statement next Wednesday. In her testimony to Congress last month, Chairwoman Yellen indicated that the removal of certain limiting language would precede Fed interest rate action, but not necessarily immediately precede it. Still, investors are showing their expectation now that the FOMC will remove the word “patient” from its monetary policy statement, and in so doing, clear the path for rate hikes that could occur at any moment thereafter. It’s important to note that the Fed also speaks about international concerns as a reason for its patience; see the last monetary policy statement . It had been referring to worries that Greece could unravel the eurozone, but it also refers to the danger of a dollar so strong that it hampers American exports. Janet Yellen has indicated that this is an issue the Fed has its eye on. The dollar has been appreciating significantly over the past week, so there is some possibility that the Fed could hold off on the removal of the language. However, the market and I seem to agree the possibility of that is highly unlikely. I believe it’s in the Fed’s interest to remove the language sooner rather than later, to allow the marketplace to reevaluate the relative value of the dollar. Fed rate hikes are a reality investors are going to eventually have to digest. Also, recently some Fed members have expressed an interest to act sooner rather than later so as to enable it to better control the pace of rate hikes, which is in the market’s best interest. Many investors see a June Fed rate hike as possible, and the removal of “patient” language from the March release will stir fear in some. My expectation is that the Fed will first raise rates in September. Nevertheless, the market has not perfectly incorporated Fed rate hikes, and the reality of the situation will force that now. Rate hikes matter because they raise the cost of capital for American corporations. That, in turn, raises the threshold for economic value creation, which impacts market value creation. While rate hikes are not expected to follow a steep path, investors will consider that favorable prospect at some future date. They will also ignore, for now, the fact that the cost of capital will not be significantly increased overnight. This information means that stocks will trade choppy this year, but I would not expect a steady trend-line higher. There is also immediate risk of a market correction as the market adjusts to the changing environment. Investors who bought the SPY on my past recommendation should now sell it. A stock-pickers’ market is in store, so investors will have opportunity to buy favored ideas at better pricing, but the broader market should be avoided for the next 6 months. I cover the market regularly and the SPY ETF, so relative interests may find value in my column . Disclosure: The author is long SPY. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: My SPY position is negligible, and I have an open sell order.