Foreigners Likely to Return to the Market?

2:29:06 PM | 1/10/2019

Strong foreign selling on the stock market in August 2019 was seen not only in Vietnam but also in other Asian markets such as Indonesia, Thailand and South Korea. Given the least net-selling in Vietnam relative to regional peers, foreign investors are expected to return to buy in the fourth quarter of 2019 thanks to favorable and optimistic factors.

Strong foreign net selling

On the Hochiminh Stock Exchange (HOSE), foreign investors ended their 11-month net buying by a net sale of more than VND1,600 billion (nearly US$70 million) in August 2019. Recent reports by securities companies showed that, in August alone, foreign investors sold out most on both HOSE and the Hanoi Stock Exchange (HNX) since the start of the year. They robustly sold VJC (VND1,021 billion), HPG (VND521 billion), VRE (VND247 billion), and VCB (VND162 billion).

At the same time, cash flows from exchange-traded funds (ETFs) were also withdrawn most since the beginning of the year, especially from VFMVN30. A report by Viet Dragon Securities Corporation (VDSC) showed that investment funds withdrew more than US$50 million in August 2019. Due to a one-month delay of trading by foreign investors with ETF cash flow movements, foreign investors are likely to continue their net sale.

Remarking on foreign net selling, Mr. Hoang Thach Lan, VDSC representative, said, Vietnam's stock market is currently hurt by a lot of negative news and we should not exclude the likelihood that foreign funds will consider restructuring their portfolios and reduce risk-prone stock exposures.

According to experts, strong foreign selling on the stock market in August 2019 was seen not only in Vietnam but also in other Asian markets. And, Vietnam suffered the least net selling relative to regional peers. The U.S. - China trade war has destabilized the global macroeconomic landscape, resulting in strong volatility in the U.S. stock market, the flattening of U.S. government bond yield curves and rising precious metal prices (gold and silver). For that reason, global investors will seek safer channels and walk away from key emerging markets.

Market still attracts foreign cash flows

To date, no market agency has recorded foreign net selling in Vietnam. Who are selling more than they are buying: Individuals, organizations, value funds or ETFs? According to Mr. Lan, ETFs may be the net sellers because there is little information about big funds on HOSE. Hence, foreign net selling is not too worrying.

In addition, positive macroeconomic growth and sustained dong stability are considered a plus for Vietnam to attract long-term foreign cash flows. The government also reported its macro indices for the end of the year and set high growth targets for the following year. Moreover, the amended Securities Law, which is set to be debated in October, promises to create a favorable and transparent environment for investors.

Matthew Smith, Head of Research and Analysis at Yuanta Securities Vietnam Company, said, although trade disputes are not likely to be solved soon, cash flows into emerging markets like Vietnam may be improved later this year when global central banks, especially the United States Federal Reserve (Fed), loosen their monetary policies to cope with slowing economic development.

Besides, among three new indices introduced by HOSE, the Vietnam Diamond Index promises to catch the fancy of foreign investors because stock selection criteria may partially meet their needs for owning good stocks whose foreign ownership rooms are already full. Both domestic and foreign investors expect HOSE will announce the stock basket of this index in October 2019. The advent of index-tracked ETFS may help the market draw new foreign cash flows.

In addition, although business performances of industry-leading companies in the first half of 2019 slowed down in terms of profit growth, the VN-Index is expected to move in the range of 950 - 990 points in the remaining months of 2019. This expectation is completely grounded. Currently, cash-rich funds are seeking to increase their stock exposures to balance their portfolios. For that reason, foreign investors may buy more than they sell in Vietnam in the fourth quarter of 2019.

Positively, according to HOSE, foreign investors bought net VND143 billion of stocks in early September although they still sold net 5.8 million shares in the period. Foreign net buying on HOSE resulted from put-through transactions.

However, according to experts, the market liquidity may reach new highs as in late 2017 and early 2018 and investors are recommended to focus on stocks whose foreign ownership ratios are almost full. These stocks are less affected by external factors and foreign net selling.

Luong Tuan