Factors affecting performance of foreign funds on vietnam stock market

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON FACTORS AFFECTING PERFORMANCE OF FOREIGN FUNDS ON VIETNAM STOCK MARKET HOANG HAI CUONG ID No: 19047270 Intake Supervisor: Dr Tran Thi Xuan Anh September 2020 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126223531000000 EXECUTIVE SUMMARY With strong growth and development of the national economy over the las few years along with various contributive socioeconomic attributes, Vietnam has become an attractive place of investment for foreign investors In recent years, the presence of investment funds in the financial market and financial system has been emerging Assessing the performance of foreign investment funds in Vietnam stock market including both foreign-owned and foreign-invested funds, the paper consider several fund attributes like foreign ownership, years in operation and managerial characteristics with the board size along with other macroeconomic factors of economic growth, inflation, political stability and stock market expansion With respects to the limitation in the data published by investment funds in Vietnam, NAV annual growth rate was determined as the performance indicators used within this paper The empirical evidences show that all fund-level attributes have insignificant relationship with its performance The findings are somewhat inconsistent with previous studies on this topic, which was reasoned by the separation in terms of stock market characteristics between Vietnam and other markets assessed In contrast, it was evident that macroeconomic characteristics would be better in explaining the performance of fund compared to fund-specific characteristics I ACKNOWLEDGEMENT This dissertation was conducted with the support of handful of people This acknowledgement is to express my heartiest gratefulness to the people who had been supporting me in not only the completion of this dissertation but also my overall academic journey I am undoubtedly indebted to my supervisor and my beloved teacher - Dr Tran Thi Xuan Anh for her thorough support, meticulous guidance and incredibly knowledgeable advices throughout the conduct of this dissertation In addition, I would like to extend my appreciation to all the faculty’s and the University’s staff who has been assisting me in the acquirement of my degree I also want to express my thankfulness to my classmates for giving valuable advices and insights as well as direct and indirect support along this journey As a final remark, I would like to sincerest appreciativeness towards my family members, who has always been there for me, the good or the bad I could not have done it without their support II Table of Contents EXECUTIVE SUMMARY I ACKNOWLEDGEMENT II LIST OF TABLES i LIST OF FIGURES ii LIST OF ABBREVIATIONS iii I INTRODUCTION 1 Research Rationale Research Background Research Objectives and Research Scopes II III LITERATURE REVIEW Theoretical Framework 1.1 Overview of investment funds within the financial system 1.2 Literature on fund performance indicator 10 1.3 Theoretical frameworks on factors affecting investment fund’s performance 19 Empirical researches 22 METHODOLOGY 27 Research Design 27 Variable Selection and Data Collection 28 Regression Model Formulation 30 Data Analysis Method 32 IV V FINDINGS AND DISCUSSION 33 Current Investment Fund Landscape in Vietnam 33 1.1 Vietnam economic background 33 1.2 Investment funds in Vietnam 36 Summary of Findings 43 2.1 Exploratory data analysis 43 2.2 Correlation analysis 48 2.3 OLS regression analysis 49 Discussions 52 CONCLUSION 55 APPENDIX 57 REFERENCES 59 LIST OF TABLES Table Variable Selection 29 Table Sample of investment funds 30 Table Hypotheses formulation 31 Table Key regulation frameworks for investment funds in Vietnam (Nguyen et al 2019) 38 Table Correlation Matrix 49 Table Summarize of OLS regression results 50 Table ANOVA table 51 Table Summary of t-test of significance results 52 i LIST OF FIGURES Figure Financial intermediary within financial market (Source: Drake & Fabozzi) Figure Common structure of mutual funds Figure Fund classification by financial instruments and risk level Figure VN-Index performance from 2010 to 2019 (FiinPro, 2020) 35 Figure Foreign and local investors net buying/selling in 2019 (Source: FiinPro) 36 Figure Performance of major investment funds in Vietnam in 2019 (Source: FiinPro) 40 Figure Comparative performance between key investment funds and VN-Index (Source: CafeF) 41 Figure Fund Composition in the dataset 44 Figure Vietnam’s Annual GDP Growth Rate (Source: World Bank Data) 45 Figure 10 Vietnam’s Stock Market Capitalization in billion USD (Source: Data World Bank) 47 Figure 11 Vietnam’s Political Stability Index (Source: World Bank Data) 48 ii LIST OF ABBREVIATIONS - CAPM: Capital Asset Pricing Model - MPT: Modern Portfolio Theory - EMH: Efficient Market Theory - DEA: Data Envelopment Analysis - OLS: Ordinary Least Square - HOSE: Ho Chi Minh City Stock Exchange - HNX: Hanoi Stock Exchange - NAV: Net Asset Value - FP: Fund Performance - FR: Foreign Ownership - AGE: Years in operations of funds - BS: Board of Director Size - INF: Inflation rate - SMC: Stock market Capitalization iii I INTRODUCTION Research Rationale In recent decades, the presence of investment funds in the financial market and financial system has been emerging Thanks to the fast-growing globalization within the financial market, the flow of capital from investment funds have been extended into a broader spectrum allowing investors to benefit from a wider range of selection for investment Facing a broader range of investment opportunities, investors needs to be able to select the one that provide them with the highest returns at their specific level of risk acceptance To this end, the ongoing discussion on how investors assess whether an investment fund is profitable or how to measure the return and performance of investment funds have gained giant attention in the recent years With the swift development and expansion of investment fund, the question of how to measure if the investment fund is performing well has urged the incorporation of number of studies with respects to this literature bodies Tracing back to the history of this research problem, the pioneering scholars addressing this aspect can be referred to the early development of investment funds around the 1960s Since then, there have been growing number of studies developed on this topic While this topic has yet been settled with a universal solution, the ongoing discussion on the factors that might contribute to the performance of funds was raised in the middle of the confusion Utilizing different fund performance measurement from previous literatures, several scholars and studies have incorporated a wide range of analytical tactics to investigate on the determinants of highperforming investments Once again, the problem has yet found an alignment among scholars All of the above factors have become the motivation for the development of this paper The study intends to fill the gap by assessing the drivers of foreign investment funds in Vietnam’s stock market Research Background With strong growth and development of the national economy over the las few years along with various contributive socioeconomic attributes, Vietnam has become an attractive place of investment for foreign investors The investment flow into Vietnam might come in different forms from Foreign Direct Investment to investment in specific financial instruments, etc Within the financial system of Vietnam, equity market is the most important market compared to other forms of market like bond market, derivative market, money market, etc This fact in turn reflects the cruciality of the stock market in facilitating the financial capital from foreign investors into enterprises in Vietnam The growth of stock market in Vietnam has become a promising opportunity for investment funds in equity market to extend their investment horizon by including various Vietnam’s listed stocks in their portfolios Furthermore, acknowledging the essentiality of foreign investment funds to not only the financial market but also the entire national economy, the government has been ongoingly developing the regulatory framework to ease the establishment and operation of investment fund in Vietnam, by which promotes the overall health of the financial market and enhance the flow of capital from foreigners into Vietnam Similar like the current global overall trends, there have been limited regulations as well as literature on the measurement of performance for investment funds in Vietnam At most, investors pouring money into investment funds in Vietnam relies heavily on the past performance and current portfolio of the funds to determine whether to make their investment or not Moreover, assessing the literature bodies with respects to this topic in Vietnam, this paper identified that there have been relatively limited number of studies exploring the factors contributing to performance of foreign investment funds in Vietnam Research Objectives and Research Scopes