The Foreign Block: A Cause for Concern?

With over three years of experience in the stock market, Khanh Minh from District 10, Ho Chi Minh City, often opts for stocks with a solid foundation for long-term investment. One of his investment criteria is to observe the movements of foreign investors. “Seeing their net selling since the beginning of the year has worried me as the list consists of large companies with good business performance,” he said.

Putting Pressure on VN-Index

Statistics show that in the first half of 2024, foreign investors net sold over $2 billion worth of stocks on the Vietnamese stock market. In the trading week from July 8 to 12, they continued to net sell nearly VND4,500 billion, focusing on FPT with a net selling value of VND1,334 billion. This was followed by MWG and VHM, which were net sold at VND551 billion and VND467 billion, respectively.

Experts believe that the continuous net selling by foreign investors is one of the biggest obstacles preventing the VN-Index from surpassing the 1,300-point threshold. Nguyen Quang Hung, a senior economist at Dragon Capital, said there are numerous reasons for the decrease in foreign investment in Vietnam’s stock market.

“Global economic and political instability, as well as concerns about the monetary policies of powerful countries, especially the US, have significantly impacted foreign investment flows, increasing the pressure to net sell stocks. Additionally, since the beginning of the year, the VN-Index has performed well, ranking among the top five best-performing indexes in Asia, with a return of over 16%.”

It is understandable and reasonable for foreign investors to take profits, as evidenced by nearly 20% of the nearly $2 billion net selling focusing on high-growth stocks such as FPT and Diamond ETF,” Hung added.

According to Dinh Duc Minh, Investment Director of VinaCapital Fund, the rise of stocks in the fields of artificial intelligence (AI) and semiconductors has attracted some foreign investment flows back to the US. Additionally, investment flows are also going to the stock markets of Taiwan (China) and South Korea, which offer more opportunities in the fields of semiconductor technology and AI. The net selling of stocks by foreign investors is not unique to Vietnam but is also occurring in most other emerging markets.

Investing in frontier markets is becoming less attractive to foreign investors, while stocks in the US market continue to impress with significant increases. The liquidation of Ishares Frontier and Select EM ETF in June, which involved the sale of over $100 million worth of Vietnamese stocks, reflects this trend.

Domestic Investors Step Up

Dragon Capital experts commented that the net selling of stocks by foreign investors has put pressure on the VN-Index.

However, the stocks sold by foreign investors are absorbed by domestic investors, and the market’s growth remains stable. In some trading sessions, when foreign investors withdrew more capital than usual, the market experienced significant fluctuations, but the downward trend was quickly halted, and stock prices and indexes soon found a balance and rebounded.

Phan Dung Khanh, Investment Advisory Director of Maybank Securities, said that the actions of foreign investors do not significantly affect Vietnam’s stock market and are mainly psychological. From 2010 to 2019, foreign investor transactions accounted for 20% of the total market, but now they account for less than 10%, so their impact is not as strong. As individual investors currently dominate the market, the pressure from foreign investors’ net selling is offset by domestic investors.

According to experts, it is challenging to accurately predict when foreign investors will stop net selling stocks. However, this pressure may ease when the US Federal Reserve (Fed) signals a possible interest rate cut or when there is a clearer outlook for the upgrade of Vietnam’s stock market.

Regarding the prospects for upgrading Vietnam’s stock market, Nguyen Quang Hung said that if Vietnam can address the issue of pre-funding for foreign investors and meet the criteria for upgrading by 2025 as planned, foreign investors will surely reconsider. It is important to note that the economy and the profits of listed companies are recovering, and the market will have more attractive valuations by the end of the year. This is a reasonable time to make long-term investments in Vietnam.

“The portfolio of stocks tracked by VinaCapital accounts for about 90% of the market capitalization. The total profit growth of these companies for the whole year is expected to reach about 20%. Although the stock market may still be affected by exchange rates and interest rates, this pressure will ease in the coming time,” said Dinh Duc Minh.