In the second part of an interview, Steven Mantle (pictured), director at VietFund Management (VFM), talks about the need to educate Vietnamese investors and how the development of the local institutional market could trigger activity in the structured products market.

According to Mantle, investors in Vietnam are very momentum driven with 85% of daily trade coming from local investors who are generally "momentum investors", seeking short term gain, but overall participation in the market has increased.

"[Investors] have moved away more from cash, gold, and real estate towards equities," says Mantle. "They understand the risk and that this is a fairly inefficient market in many respects but a market that offers many opportunities for them. One interesting thing some local investors like to do is front-run the overseas ETFs before they rebalance, perhaps this is one of the easiest way to make money quickly."

Mantle points that to grow the market local retail investors in Vietnam need to be educated on investment fund products. "For our ETFs, we talk to brokers around the country to help them understand so they can educate their clients in to broader ways of playing the market rather than stock picking," says Mantle. "From an investor point of view, the local trade is mainly retail driven and there's now a real need to develop the local institutional market, since this is not something that exists in Vietnam on a large scale."

According to Mantle, both pension providers and insurance companies need further development in the country as these two segments can push activity around investment products. "Once we get that kind of growth, once the dynamic of the local trading changes from being almost purely retail to having a healthier split between institutional and retail, the market's climate will change as well," he says.

The problem is that at the moment investors don't have many options in terms of availability of products. "In terms of structured products available to retail investors, it is very limited at the moment," he said.  "The retail market in Vietnam will start changing, when our capital markets develop with local institutional players."

VFM is the oldest fund management company in Vietnam and has established itself in the market as a reference for ETFs with its VN30 exchange-traded fund (ETF), which was launched three years ago, as well as a balanced strategy fund in 2004 (mix of equity vs fixed income), a pure equity fund launched in 2008 and a bond fund marketed in 2013.

"We are very much one of the pioneers in the market and are still always looking for ways to differentiate," says Mantle, adding that the competitive landscape is also fueling activity in the market. "The more active asset managers there are, the more buying and selling opportunities they create. Therefore, we like the way the market has grown."

Despite being "the biggest local equity manager" VFM gets a lot of its investments from overseas investors since most companies are slow to remove their foreign ownership limits (FOL).

"We have competitive advantage as a local fund manager because we do not need to pay foreign ownership premiums as oversees managers have to," says Mantle. "At local level, perhaps the main challenge in the future will be the banks which may start creating their own in-house funds. But perhaps at some point in the future, the banks will keep that in-house and to start making their own mutual funds, bond funds, ETFs."

According to Mantle, Vietnam could replicate the situation lived in some more developed markets, for example Hong Kong, where banks such as HSBC and UBS started to create their own ETFs to stop their customers from going to other third party ETF providers.

"They apparently do not market their ETFs too much because they want their customers to go into the higher fee paying actively managed funds, but at the same time if their clients want ETF exposure, they can offer it themselves," says Mantle. "In the longer term that is one of the challenges that we will face here. But in the short term, we see more and more subscriptions from local retail investors that are participating more actively in the local equity market, and we have high levels of wealth creation here as well."

Mantle believes the growing middle class in Vietnam will attract further foreign direct investment and move higher up the value chain.  In absolute figures, the number of people deemed as middle class will be higher than in Thailand in three years' time, according to Mantle.

"[More and more Vietnamese companies] see the value of good investor relations and good corporate governance," says Mantle. "Also, macroeconomic indicators are very well controlled here. Inflation is low, interest rates are low, credit growth targets are now going up a bit from around 16% toward 20%, in an attempt to meet GDP growth targets, but really the Vietnamese economy is currently very stable."

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