Korean investors worn down by a sluggish domestic stock market are turning to Vietnam. They are diversifying beyond traditional overseas destinations such as the United States, Japan, Europe and Hong Kong into third markets including Vietnam, often described as the next China.
ACE Vietnam VN30 (Synthetic), the only Vietnam exchange-traded fund listed in South Korea, took in a net 88.5 billion won over the past three months, according to data provider ETF Check on the 13th. Direct investment is also booming. Korean holdings of Vietnamese stocks stood at $228.16 million, or about 306.5 billion won, as of the 9th, data from the Korea Securities Depository showed. The top five holdings accounted for 68.1% of the total: the KIM GROWTH VN30 ETF, an index fund run by the Vietnamese arm of Korea Investment Management ($81.85 million), Vingroup ($40.59 million), Bao Viet ($14.52 million), Hoa Phat ($12.62 million) and FPT ($5.78 million).
The concentration of direct buying in FPT stands out. Korean investors bought a net $1.26 million of FPT over the past month, more than half of their total net purchases of Vietnamese stocks in that period. FPT is Vietnam's leading information technology stock, with businesses spanning internet infrastructure, data centers and semiconductors. Analysts attribute the buying to recent positive news, including a partnership with Nvidia on expanding data centers in Vietnam and plans to build a chip packaging plant.
The barriers to entry are high. Day trading and short selling are prohibited, and daily price moves are capped at 7%. Investors must register a dedicated account, and domestic brokerages charge fees that can run to tens of thousands of won per trade. Returns have also been weak, with the VN30 index down about 4% over the past month and around 7% over the past year.
Money is flowing in nonetheless on expectations that the market's underlying structure is improving. FTSE Russell upgraded Vietnam to secondary emerging market status on Sept. 21. A merger of the Ho Chi Minh and Hanoi exchanges is due to be completed by the end of the year. Major Korean brokerages and asset managers, including Mirae Asset, Korea Investment, Shinhan, KB, NH Investment and Hanwha, are expanding their local operations. "The market has been hit by the recent weakness across Asian equities, but it has held up relatively well compared with the KOSPI," a brokerage official said. "Medium- to long-term growth prospects are drawing attention, with an economic growth rate approaching 10%, eased rules for foreign investors and more advanced trading systems."