Beginning in September, foreign investors will be able to own a 100% stake in Vietnamese companies. The decision, announced by government decree in June, will apply to most industries with the exception of banking, as it is agreed that this sector should still be capped at no more than 30% foreign ownership.
Seen as a bold move to breathe new life into the country's economy, the removal of foreign ownership limits aims to generate a renewed foreign interest in the local market, creating opportunity to boost a sluggish privatisation program. Furthermore, the decision to scrap these limits will provide a unique opportunity to strike trade agreements with the United States and European Union. Such international cooperation could help Vietnam rise in the MSCI indices from a 'frontier' economy to an 'emerging' one.
This is especially good news for certain industries, such as real estate, which has long been targeted by foreign investors. Recently, a consortium represented by Warburg Pinces invested a whopping US$100 million into Viacom Retail Group. When the removal of foreign ownership limits is officially implemented, it is expected that many similar deals will begin to occur on a regular basis.
Despite signs of growth on the surface, Vietnam’s economy has been stuttering in recent years. Neighboring countries such as Thailand have one-third the population of Vietnam but maintain a bourse eight times its size. Worries of overheating in the property market, bad debts in the banking system and the lingering financial problems of state companies continue to plague Vietnam. Nevertheless, this is a move in the right direction.
