The Smart Money Loses Out to VN-Index

The Vietnamese stock market has been through a challenging period for investors. While the VN-Index climbed nearly 105 points (+8.3%), reaching a three-year high, many investors incurred losses. Both individual and large-scale foreign funds with assets worth billions of dollars faced difficulties.

Two of the leading foreign funds in the Vietnamese stock market, VEIL – Dragon Capital (-9%) and VOF – VinaCapital (-6.4%), recorded negative performance since the beginning of the year. Meanwhile, other funds, such as JPMorgan VOF and Pyn Elite Fund, despite showing better performance, could not outperform the VN-Index.

The underperformance of these foreign funds can be attributed in part to the rising exchange rate since the beginning of the year, surpassing the 26,000 mark. The Vietnamese dong (VND) has depreciated by nearly 3% against the US dollar (USD) year-to-date, reducing the value of foreign investment funds’ assets when converted into foreign currency.

However, a more significant factor is the divergence between the portfolios of these foreign funds and the main drivers of the VN-Index. Since the beginning of the year, stocks from the Vingroup family (VIC, VHM, VPL, and VRE) have surged, contributing over 110 points to the VN-Index. Meanwhile, most other stock groups have either stagnated or declined.

The top foreign funds in the market, however, have not allocated a significant portion of their portfolios to the Vingroup stocks. JPMorgan VOF is a rare exception, with both VIC and VHM among the top holdings in its portfolio. Most other funds hold only a small amount of VHM.

In reality, it is challenging for large-scale foreign funds to restructure their portfolios to capture short-term market trends, especially in a frontier market like Vietnam, which is volatile and unpredictable. Moreover, the lack of significant market rallies in recent years has also contributed to the underperformance of these foreign funds.

The difficulty in generating profits is one of the reasons why foreign investors have been less enthusiastic about the Vietnamese stock market. This is evident from the long-standing net selling trend in the market. Foreign investors set a record by net selling over 90,000 billion VND on HoSE last year and have continued to net sell more than 40,000 billion VND since the beginning of this year.

However, the net selling by foreign investors on the stock market does not necessarily mean they are exiting the Vietnamese market. Many foreign investors continue to invest in private placements by Vietnamese enterprises, with deal values reaching hundreds of millions of dollars. Nonetheless, the persistent net selling trend by foreign investors is noteworthy.

In summary, the Vietnamese stock market faces certain short-term challenges due to (1) profit-taking pressure after the previous uptrend, (2) unstable economic and geopolitical conditions globally, and (3) continued foreign capital outflows from frontier and emerging markets. These variables can impact the performance of funds and individual investors in the short term.

Nevertheless, the long-term growth prospects of the Vietnamese stock market remain positive due to (1) stable macroeconomic conditions and government initiatives to boost the economy, (2) the potential for profit growth among listed companies, and (3) the increasing likelihood of an upgrade to emerging market status following efforts by regulatory authorities.