Mutual funds put up good show in first half

Update: July, 25/2016 - 11:21

In the first half of the year, many open-ended mutual funds have reported solid results, with their growth rates averaging 1.65-12 per cent. 

The highest growth in net asset value (NAV), estimated at 12 per cent , was reported by balanced funds like VCBF Tactical Balanced Fund and VCBF Blue Chip Fund of Vietcombank, VF1 and VF4 of Việt Nam Fund Management Company, and SSI-SCA of SSI Sustainable Competitive Advantage Fund. 

Funds investing in debt saw lower growth rates of 1.65-4.84 per cent due to less favourable conditions. Due to low and steady interest rates since 2015, returns on debt-focused funds have been modest. 

In Việt Nam, there are now 18 open-ended funds, including five debt funds, four balanced funds and nine equity funds, that have over VNĐ2.4 trillion (overUS$106.66 million) under management.

There are six closed-ended funds including the Việt Nam Enterprises Investments Limited and VAM Việt Nam Strategic Fund.

Debt funds’ investments include government, corporate, municipal and convertible bonds, along with others like mortgage-backed securities.   

A balanced fund is a mutual fund that generally has a 50-50 mix of stock and debt. 

Admittedly, the majority of the mutual funds’ investments come from institutions that are their partners. 

This has been especially true of MB Capital Value Fund, Bảo Thịnh Bonds Investment Fund and Vietcombank funds like VCBF-BCF and VCBF-TBF. 

They have all seen their investments grow by 20 per cent this year. 

Market observers attribute the funds’ success to various reasons, one of which is the Government’s efforts to improve the legal framework for the securities market. 

Accordingly, many new products are expected to be introduced in the near future, encouraging investors to further pump money into the funds. 

The economic stability and improved incomes of the middle class in the country have also encouraged people to invest in financial products instead of depositing money in the banks as they used to do. 

Some eight million Vietnamese now have a daily household expenditure averaging $10-100, which is the criterion set by the Organisation for Economic Cooperation and Development for a family to be classified as middle class. 

The country’s participation in the Trans-Pacific Partnership (TPP) agreement is also an important reason for securities, especially mutual funds, to become more attractive to investors. 

The TPP deal is expected to bring an impetus to the Vietnamese economy to develop by hastening the process of economic reform so that it can adapt to TPP requirements. 

This is also expected to improve the transparency of the securities market and raise it to international standards. 

Analysts said, however, that authorities should consider tax breaks to encourage more investment in mutual funds.

Đồng could slide 3% by year’s end

The đồng could fall by up to 3 per cent against the US dollar this year as the US Federal Reserve is expected to further raise interest rates at a meeting on July 26-27, sending the greenback higher.

Pressure on the exchange rate is also expected due to the impact of Britain’s vote to exit the EU.

In the first half of this year, the exchange rates were quite stable thanks to the central bank’s policy of daily reference rates and market intervention measures late last year, in addition to quicker disbursement of FDI money.

According to the General Customs Agency, FDI and foreign indirect investment (FII) rose 105.4 per cent, or VNĐ11.28 billion, over the same period last year, of which the disbursed capital was $7.3 billion, a year-on-year increase of 15.1 per cent.

More dollars are also expected to flow in when many companies increase their foreign ownership cap and a surge occurs in mergers and acquisitions and IPOs.

The central bank bought around $8 billion worth in the first six months to improve its ability to regulate the market if the need arises, testimony to the fact that the supply of foreign exchange in the domestic market is large.

It was this large supply that made the greenback weaken from VNĐ22,500 to VNĐ22,360 in the first five months. It was not until early June that it regained some of its losses and jumped to VNĐ22,480.

But analysts said some favourable conditions that kept the exchange rates steady in the first half of the year would cease to exist.

For one, demand for the greenback is likely to rise because imports will be higher during the peak business season at the end of the year.

The US is likely to raise interest rates by year-end, sending the dollar rising.

The Chinese yuan could possibly continue to depreciate because of the fallout of Britain’s imminent exit from the EU.

Analysts also said the exit has created instability, meaning there could be more risks for the global financial market since many rules, commercial principles and movement of human resources could change.

This could result in significant changes in expectations and trends in the global financial market, forcing central banks around the world, including the Vietnamese one, to be ready to change plans, including those related to forex, to adapt to the new situation.

Inflation fears rise

By the end of June, credit growth was 6.82 per cent, indicating growth for the whole year could top 20 per cent.

This is based on last year’s outcomes when growth in the first half and full year was 6.3 per cent and 18 per cent.

Market observers also said many banks have almost reached their full-year credit targets and urged the central bank to provide more leeway.

However, experts are already fearful of high inflation, estimated to be 5.1 per cent this year, higher than the central bank’s target, since banks are vying with each other to lend.

The early signs of a loose monetary policy are visible, especially from the broad money supply, which has shot up by 8.07 per cent this year and is much higher than at the same time in the two previous years.

Analysts attribute the rising money supply to several reasons, one of which is the central bank’s injection of a large amount of đồng through open market operations (OMO) and treasury bonds.

According to Bảo Việt Securities Company, the State Bank of Việt Nam pumped in VNĐ32 trillion ($1.422 billion) through OMO, and VNĐ25.7 trillion through purchase of treasury bonds.

Reports from the General Statistics Office show that in June the consumer price index (CPI) rose 0.46 per cent month-on-month and 2.4 per cent year-on-year.

The inflation in the first six months of this year is estimated at 1.72 per cent following higher transportation and housing costs.

There has been an unrelenting rise in interest rates in recent months, particularly on deposits, as they strive to keep up with inflation.

Many analysts said credit growth is imperative for economic growth.

However it would bring concomitant inflationary pressure, they admitted.

The economy’s ability to absorb capital looks weaker right now than it was before, as shown by the fact that deposit growth has been much higher in the last few months than credit growth, meaning people preferred to save than invest in businesses.  

So the analysts suggested that the Government should tighten monetary and fiscal policies to ease inflation, which always brings with it instability.

But this has sparked off the old debate of growth versus inflation, with other pundits saying the central bank should not tighten monetary policy even in sensitive areas like real estate.

They pointed that tightening of credit in previous years brought the economy to a standstill, resulting in the closure of thousands of businesses.

Besides, while inflation is showing signs of increasing, it would remain low, they said.

Moreover, inflationary pressures would mainly come from rising prices of commodities and not money supply, they said.

An SBV representative said the central bank would continue to loosen credit for priority sectors such as manufacturing and exports, but also closely monitor disbursement of credit to high-risk areas.

With this way, the monetary policy would be steady while the economy would still be ready to cope with possible inflation, he added. — VNS