Korea Times: Viet Nam Fund Investors Sustain Big Loss

Wednesday, May 21, 2008
Investors in Viet Nam equity funds are having sleepless nights as the Vietnamese bourse has dropped around 60% from its peak last year. Analysts advise investors to keep in mind that investment in emerging markets such as Viet Nam entails risk.

Funds investing in the Vietnamese bourse have been popular here from around 2006, following the launch of such funds by Korea Investment Trust Management Corporation and others. Seoul funds investing in the Vietnamese bourse total over 1.8 trillion won, which is equivalent to about 10% of the total market cap there.

The Vietnamese stock market, however, dropped nearly 60% from its peak last year. This contrasts with other global equity funds, which are slowly recovering from the U.S. subprime mortgage woes. Many of the Vietnamese funds have recorded over a 30% loss from the beginning of this year.

The concern is especially augmented following the release of a report by Daiwa Securities. The report points out that Viet Nam's macroeconomic fundamentals have deteriorated dramatically over the past half-year. ``With inflation at 21.4% year-on-year for April, and the 12-month rolling sum of the trade deficit soaring to $21 billion, Viet Nam needs a bout of severe austerity to restore stability, in our view,'' it said.

``Given the absence of palatable policy choices, we think Vietnam will be obliged to turn to the International Monetary Fund (IMF) for assistance within the next few months. Until it does so, we suggest investors be zero-weighted in Viet Nam.''

The Vietnamese government pulled up the interest rate to subdue inflation, which caused tight liquidity on the stock market.

However, there seems to be few options for investors.

Most of the Vietnamese funds here are closed-end funds, from which investors cannot withdraw money. Such closed-end funds are often listed on the exchange, but few people are willing to buy them.

Park Hyun-chul, a fund analyst at Meritz Securities, said the outlook isn't good for this year. ``On top of the inflation, other economic indices are bad. The government lowered the GDP growth target by 2 percentage points. And the trade deficit concern is growing.''

He said the Vietnamese government isn't as competent as other governments in coping with such economic problems. ``It's like the Korean bourse in the 1960s and 70s. It has huge growth potential, but the capital market falls behind economic growth.''

Still, analysts advise that investors should wait and see instead of withdrawing money. ``The fund was sold closed-end as they determined that the long term growth potential is good despite the risk,'' Park said.

Goldman Sachs estimated the real GDP to grow 7.3% this year, which is solid compared with other emerging countries.

Park said turmoil like this can happen in any emerging market. The problem is that investors have little information about markets like Viet Nam. ``There is cognitive dissonance among fund investors. They only take the attractive points, and ignore risky factors. Emerging markets entail risk. It is even more so with frontier market funds.'' (KoreaTimes.co.kr)