Lifting of Foreign Ownership Limits Signals Sea Change in Vietnam's Capital Markets
Thanks to a subscriber for this article by Steve Mantle which appeared in Finalternatives and may be of interest to subscribers. Here is a section on Pakistan:
Even small gains in the weighting for frontier and ASEAN indices can have a significant effect on net foreign buying, in turn further helping market cap and liquidity.
The longer term benefit is accession to the MSCI Emerging Markets Index. MSCI announced in June they are adding Pakistan (9.2% Frontier weighting) to the review list for Emerging Market classification. The Karachi Stock Exchange (market cap $75bn) satisfies 14 of the 17 items in MCSI’s criteria. The HOSE meets just 7, although these latest reforms will help towards fulfilling 3 of the foreign ownership requirements. Additionally 2 more items, ‘clearing and settlement timescales’ and ‘investor registration and account set up’, are also being addressed in an attempt to make Vietnam more competitive.
Technical changes in how a market is considered by providers tend to have outsized results. Vietnam’s decision to further loosen foreign investment limits in its stock market represented an important development for its potential to represent a larger weighting in international benchmarks.
As a small market where the government plays a large role in access and where there are attractive fundamentals Vietnam has not been correlated with global stock markets. As a result it is being viewed increasingly favourably by those seeking a hedge.
The Index is currently pulling back from the upper side of an 18-month range and will need to hold the 550 area if medium-term recovery potential is to continue to be given the benefit of the doubt.
Pakistan being elevated to the MSCI Emerging Markets Index is a positive development for its stock market, but the difficultly foreign investors have in accessing the market is concern. For example the London listed DBX MSCI Pakistan ETF is currently trading at a premium of 26.5% to NAV which is rather extraordinary for such a fund. This condition suggests it is having difficulty deploying capital which may account for its underperformance relative to the overall market.
There is a number of Pakistan listed funds offering exposure but I only found one listed outside Pakistan that approximates the Index. This is the Sweden listed, Krona denominated, Tundra Pakistanfond which has a management fee of 2.5%.