The Vietnam Association of Financial Investors (VAFI) has expressed its concerns about the possible bad impacts on the stock market if the draft regulation on securities investment company management is approved by the Ministry of Finance.
VAFI has pointed out that the compiling committee has put forward many unsuitable provisions, which prove to be contrary to the Securities Law.
The draft regulation stipulates that only investment fund management companies and branches of foreign investment fund management companies are allowed to provide services on capital and asset mandated management and investment. Only investment fund management companies and branches of foreign investment fund management companies can act as representatives of foreign investment institutions in mandated transactions.
Provision 89 of the draft regulations states that foreign securities trading institutions that want to set up branches of fund management companies in Vietnam must meet several requirements. They must have at least three years of experience in the fields of fund and portfolio management. In addition, they must be managing assets valued at 500mio US$ at least in the current fiscal year.
According to the State Securities Commission (SSC), more than 200 foreign institutions have invested in the stock market in Vietnam. Of this number, according to VAFI, some 50 institutions operate in close connection with foreign fund management companies which have representative offices in Vietnam. The remaining 150 foreign institutions do not have relations in mandated asset management with domestic fund management companies or with foreign fund management companies which have representative offices in Vietnam.
A half of the 150 institutions has just opened transaction accounts in Vietnam and has not had any investment activities. These include big names like Citigroup, Morgan Stanley and JP Morgan. These institutions are managing the assets of several hundred overseas investors.
If the draft regulation becomes effective, the foreign institutions that wants to provide asset mandated management and investment fund management services in Vietnam’s stock market must set up branches of foreign fund management companies or join hands with domestic partners to set up joint ventures to manage investment funds. If not, they will have to re-mandate the asset management to domestic companies.
This regulation, according to VAFI, is unfeasible for several reasons.
First, leading foreign financial institutions still consider Vietnam a small market which does not have many opportunities. Therefore, they would not think of opening branches of fund management companies in Vietnam. Moreover, the institutions would not trust smaller foreign institutions as they are very big names.
Second, the suggested regulation will narrow the range of choices of investors. What will happen if investors cannot decide to whom they should mandate their investment, but have to rely upon institutions they do not like?
Third, the regulation will make many foreign institutions leave Vietnam’s stock market. On their leaving, they will have to transfer capital abroad as they do not have the legal status to manage the capital. As a result, the foreign capital inflow into Vietnam will decline considerably.
Fourth, the requirement for foreign institutions that want to set up branches of fund management companies in Vietnam (having three years of experience in the fields of fund and portfolio management; managing assets valued at $500mil at least in the current fiscal year) will force 80% of the investment institutions present in Vietnam to stop operating as they cannot meet the requirements.
Finally, the regulation will not help create an attractive investment environment. This proves to be not a good path for management, and does not come in line with international practice.
Source: VEN
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