Corruption crackdown in Vietnam bodes well for investors

A number of high-profile arrests in recent weeks demonstrate the government’s determination to bring corporate governance up to international standards.

Vietnam is on track to be one of the next emerging market success stories, according to locally based experts, despite explosive political events in recent weeks.

The Vietnamese market was one of the fastest risers in the early part of this year, with the MSCI Vietnam index gaining 30.41 per cent between January and March.

However, on 20 August the president of the Asia Commercial Bank was taken into custody amid allegations of corruption, with further arrests following soon after. As a result, the market tanked by 10 per cent in a matter of days.

Performance of index over 6 months

Source: FE Analytics

It seemed to confirm investors’ worst fears about emerging markets – that they lack transparency and are prone to corruption – but Min-Hwa Hu Kupfer, chairman of the Vietnam Holding investment company, says this is far from the truth.

"The government is stepping up its anti-corruption drive, which is a positive," he said. "They recognised the damage that was being done to the image of the country as a place to invest in and they are reacting to it."

"As overseas investors, we think if they are moving against corruption it is very good news and we welcome it."

Juerg Vontobel, founder of Vietnam Holding, adds that overseas investors have actually reacted positively to the developments, adding to their positions, while it has largely been domestic investors who have wavered.

"The market hasn’t actually reacted violently; it lost an initial 15 per cent and then a further 5 per cent, so relatively modest falls. Foreign investors have seen it as a positive overall," he explained.

Marc Djandji, senior vice president at Indochina Capital, which runs privately managed portfolios in the region, says that the crisis changes nothing about the country’s potential.

"The demographics are good, the country is opening up to foreign investment, and it fits well into a China plus-one strategy – these are all factors that support Vietnam from the point of view of foreign investors," he said.

Djandji explains the country is the world’s largest exporter of pepper and the second-largest exporter of rice. It also exports huge amounts of coffee and seafood.

He cites the low correlation of the country to major international markets as extremely attractive for investors.

"It has not been within the same cycle as the world economy, it is still a domestic-driven, retail-driven economy. Foreign investors represent only 20 per cent of trading."

Data from FE Analytics shows that the MSCI Vietnam index has a low correlation to the FTSE All Share, MSCI Asia Pacific ex Japan and MSCI Emerging Markets indices.

Correlation of indices over 3-yrs
Name FTSE All Share MSCI AC Asia PacifiC ex Japan MSCI EM (Emerging Markets) S&P 500
MSCI VIETNAM -0.07 0.24 0.21 0.04
Source: FE Analytics

Djandji also says that the recent arrests should not deter investors.

"Our view is ‘let the market panic’; it’s positive if the government is getting a handle on corruption," he said.

Thomas McMahon

Vietnamese journalist who exposed police corruption sentenced to 4 years in jail for bribery

HANOI, Vietnam — A Vietnamese journalist who bribed a police officer as part of an undercover investigation into corruption was sentenced to four years in prison on Friday, while the officer who accepted the money got a five-year sentence, state-controlled media reported.

Hoang Khuong

Relatives and colleagues of Hoang Khuong stood up and cheered after he made a statement to the court proclaiming his innocence, according to a report by his paper, Tuoi Tre. The reaction appeared to be a rare, albeit modest, show of public defiance toward the state and its Communist rulers, who critics say are launching a renewed crackdown on the media.

All media in Vietnam is tightly controlled, but free speech activists say enforcement is getting tougher by a government that fears that hard-hitting journalism and social media are eroding its grip over the people. There are currently at least five journalists and 19 bloggers being held on various charges in Vietnam, according to the international watchdog Reporters Without Borders.

Khong, who has been in jail since February, gave a police officer a bribe of $710 in June last year in order to get an impounded motorbike returned.

The 37-year-old paid the bribe as part of reporting on police corruption and later wrote two articles about it that appeared in Tuoi Tre, triggering public anger at the police. Judges at the two-day trial in southern Ho Chi Minh city sentenced him to four years in jail, and the officer who took the money to five, according to a report in Tuoi Tre. Four other people were also sentenced to prison terms in connection with the case, including Khuong’s brother-in-law.

In a speech before his sentence was handed down, Khuong said he “had honest motives in detecting and fighting corruption in line with party and state policies” and that while he may have committed a journalistic error he had done nothing criminal.

Representatives of Tuoi Tre were not permitted to give evidence at the trial. The paper’s editors declined comment.

Editors and journalists in Vietnam do not have to submit everything they print or broadcast to state censors, but are well aware of which topics they are to avoid. In 2008, a journalist for Thanh Nien newspaper was sentenced to two years in prison for his coverage of a high-profile corruption case at the transport ministry.

Washington Post