However, the move was almost certainly a mistake. In this, the world’s youngest stock market, it seems likely the investor was going for one of the four listed stocks, all of which have been limit-up (5% on 28 July and 2% thereafter) every day since trading commenced and even at current prices dividend yields range form 8% to 15%. The problem has been getting your hands on the shares - no one wants to sell. Thus, rumours flying on the exchange last week said that the bond deal was actually made by someone trying to buy shares but did the wrong trade by mistake.
Anyway, back to the bonds, which last traded at D100,600, giving an effective yield of 6.46%. A falling yield is good for the Vietnam government and may mean it is able to get a better price for the D300 billion five-year issue it has planned for Tuesday 15 August. For some, however, it’s bizarre that the yield is falling given the inherent country risk. “These bonds would have to be very, very high yielding to justify a fund like ours investing in Vietnam … If you were to price this to reflect risk, you would be looking at a 100% yield,” says Dennis Lim, who controls Templeton’s $70 million Vietnam and Southeast Asia fund.
Yield play
“The bonds aren’t very attractive,” agrees one foreign banker in Ho Chi Minh City. Despite the fact one year interbank rates are around 7%, local banks have been big buyers of the first issue and look set to do the same again tomorrow (August 15). Mind you, compared to the 5% yield on one-year government notes that local banks have been buying, the bonds are a good buy. Regardless, as state-controlled entities in Vietnam, local banks do as they're told and if that entails providing cheap funding for the government then so be it.
For foreign banks, however, the bonds are a definite no-no. Only short-term dong liquidity is available to foreign banks and this can be recalled at short notice if the Vietnamese government suspects any speculative activity. As evidenced by the first bond’s trading history, liquidity is very low and a forced sale to repay short-term borrowings could be painful.
Risk pricing and other concerns aside, the fact the Vietnamese government is making initial efforts to develop its capital markets is commendable. It will, however, be some time before investor education and regulations are up to speed. Templeton's Lim says he may be taking another look at Vietnam stocks in three or four years time.
