Vietnam prepares for turbulent growth as China's insurance titans take on local fundies: Cerulli

A series of major listings, tipped to raise at least $US1 billion each, are expected to double the market capitalisations of major Vietnamese exchanges this year as the country’s mutual fund industry braces for further volatility and expansion, Cerulli Associates (CA) has reported.

The Cerruli Edge Asia-Pacific Edition, for the second quarter of 2007, listed Vietcombank, BIDV Bank, Mekong Housing Bank and Bao Viet Insurance as likely prospects for listing within the year. In 2006, the market capitalisations of the Hanoi and Ho Chi Minh City bourses increased fifteenfold, albeit only to US$15 billion, as 100 off-the-counter markets, driven by an agreeable tax environment, moved onto the exchanges. Some local funds managers have tipped the market capitalisations to double, perhaps triple, during 2007. CA wrote that Vietnam’s “China-like economic drivers” – rising foreign direct investment, improving export position, increased public spending and World Trade Organisation access – which had delivered a sustainable 8 per cent annual GDP growth, lured many foreign investors to set up Vietnam-focused funds. Such investors included Prudential, DWS and JF Asset Management. However, sceptics had already contended that the market resembled a bubble, given its price-earnings ratio was more than 30 times that of the biggest stocks, and local investors’ willingness to hold or sell while foreigners bought up. While there was abundant fresh liquidity, there were not been enough places available to absorb it. “Regional asset managers now know that Vietnam has arrived,” CA reported. “But deploying their capital to take advantage of it is going to be challenging, with the risk of joining a party in full swing just in time for somebody to turn down the music.” Meanwhile, the Chinese insurance industry regulator, China Insurance Regulatory Commission (CIRC), had permitted the largest Chinese insurers to establish separate asset management firms to manage in-house assets, both shareholder capital and insurance reserves. These insurance asset management firms (called IAMCs), could feasibly compete with the country’s 53 mutual fund managers, further intensifying an already hotly contested arena. CA reported that assets in the nine largest Chinese insurance firms ranged up to RMB1 trillion, which equaled the sum of assets in the whole mutual fund sector. China Life, the largest of the insurers, had transferred 90 per cent of its investable assets, RMB540 billion, to its IAMC extension. CA identified three common relationships that existed between IAMCs and their parent companies. Some were “a direct spin-off” from an internal asset management team and were usually only skilled in managing government gilts, bonds and cash. Others invested in a greater array of assets but followed investment and asset allocation strategies that were set within the insurance company. But some, more autonomous, IAMCs were able to set their own investment and asset allocation strategies and had hired employees with banking, funds management and securities backgrounds to diversify the skill-sets within their investment teams. “We believe that it is this third group of IAMCs that will pose the greatest threat to existing funds managers in the future as they not only have the deep pockets, but also have a formidable team for themselves to compete for third party funds management business once the CIRC gives the green light for them to do so.” Capable IAMCs had been withheld from managing pension fund assets since it had not been determined which regulatory body their retail funds management capabilities would be subject to – CIRC, the China Securities Regulatory Commission, or both.