Vietnam Strategy: Of FOLs and Money

Full-FOL stocks have been laggards YTD

Stocks with no remaining foreign ownership room have been underperformers YTD, underscoring a possible unintended result of the FOL cap. Potentially – but not conclusively –after a stock’s FOL cap is filled, the implied lack of future foreign net buying negatively impacts domestic investor sentiment for the stock. However, the discrepancy in YTD performance of full-FOL vs open-FOL stocks could also just be a result of specific market action in 1Q19.

VN30 screen: Performance of full-FOL stocks has underperformed open-FOL stocks by 9.8 ppt YTD. According to FiinPro, eight stocks in the VN30 have reached full FOL. Of the remaining 22 tickers, five have eliminated the FOL cap entirely whereas 17 have at least some room remaining for foreign net buying. After weighting each stock by its free-float market cap, we find that the full-FOL group posted 1.0% upside YTD as of April 8. By contrast, the group with remaining FOL room delivered 10.8% in share price upside in the same period.

The full-FOL group also lagged HoH, but outperformed over the past 12 months. Using the same April 8 free float market cap weightings, full-FOL stocks underperformed their open counterparts by 4.1ppt over the past six months, during which they declined by 1.6% HoH vs the latter’s 2.5% gain. The 12 month data gets messy due to the 2Q18 additions of VHM and TCB, but after adjusting the data to reflect their performance since listing, the full FOL group declined by 3.4% YoY whereas the open-FOL group fell by 9.6% YoY.

Conclusions? It’s tempting to conclude from this screen that full-FOL stocks underperform in a bull market but outperform in a bear market. This would be backed up by the notions that 1) institutional investors are in the game for the long haul and thus there is less net selling of their favorite stocks when the overall market tanks, and 2) expectations of zero future net buying by foreigners once FOL caps are reached causes domestic investors to avoid stocks with full FOL during a bull market. This is tidy logic, and we are fans of tidy logic.

Maybe, maybe not. The problem with these conclusions is that the Vingroup tickers account for 63% of the open-FOL group’s +10.8% YTD weighted return – VIC (+27.5% YTD), VHM (+26.7%), and VRE (+29.7%). Stripping out these heavyweights, the open-FOL group was up just +4% YTD, just 3ppt ahead of the full-FOL group. So it may be early to make any sweeping conclusions from this data. Despite this, the share price behavior of full-FOL stocks nevertheless merits consideration and monitoring going forward – especially given the substantial (c. 10-25%) premiums for purchasing such shares.

Vietnam Strategy — Of FOLs and Money