From being net sellers in the first nine months of 2022, foreign investors have become the driving force supporting the Vietnamese stock market in the last few months, and the inflows are expected to continue this year.
In 2022, this group net disbursed more than 29.2 trillion VND (1.2 billion USD) to the market, while it has net sold nearly 18.8 trillion VND and set a record net selling value of over 62.2 trillion VND in 2021.
In November alone, more than 16 trillion VND in net disbursed cash flow from foreign investors was significantly supported by exchange-traded fund (ETF) capital inflows into the market, primarily from the Fubon ETF and the VNDiamond Index-based ETF.
A study by BIDV Securities Company (BSC) analysing over 50 billion USD owned by foreign investors on the Vietnamese stock market showed that more than half of foreign ownership is owned by strategic investors. This group usually holds stocks for the long term.
The second group consists of investment funds, typically from Europe, that invest the majority of their assets in Vietnamese securities. These investors are attached to the development of the market, and the investment depends on the amount of money raised from investors.
There are also a group of index funds, which account for more than 10% of the number of shares held by foreign investors and operate quite flexibly, and a group of investors who buy securities through P-notes (participatory notes).
The market’s drop in October and the first half of November prompted a cash inflow into the Vietnamese stock market. Positive cash flow spread across many ETFs.
The total net inflow of ETFs reached nearly VNĐ7 trillion in October, the highest value recorded since April 2021. For the first ten months of 2022, ETF capital flow reported a record value of over 18.8 trillion VND, far exceeding the value of 13.5 trillion VND for the whole year of 2021.
Besides accelerating capital disbursement in the stock market, some signals showed that cash flow will continue to flow into the stock market in 2023.
In early December 2022, VanEck Vietnam ETF (VNM ETF) said that it agreed to change the benchmark index from MVIS Vietnam Index to Market Vector Vietnam Local Index. Accordingly, the MVIS Vietnam Index will be deleted and transferred to the Market Vector Vietnam Local Index.
With the change of the base index, VNM ETF is expected to increase the proportion of Vietnam to 100%, equivalent to more than 100 million USD pouring into the domestic stock market. The expected effective date is March 17.
Previously, the Fubon FTSE Vietnam ETF from Taiwan (China) was also licenced to raise additional capital for the fourth time, with a scale of up to 5 billion TWD (nearly 4 trillion VND) at the end of November 2022.The fund’s fourth offering started on November 23, 2022.
The ETF aims to invest 100% in Vietnamese stocks and selected potential industries. The fund will disburse new investments into Vietnamese stocks from December 2022 to February 2023.
Factors attracting foreign investors
In a letter to investors last month, PYN Elite said that the market benchmark VN-Index hit the bottom in last November at 900 points and has the opportunity to grow positively in 2023.
“The confidence in the market improved. We expect the VN-Index to move in sync with Vietnamese economic growth and the expected increase in corporate profits in 2023. Among ASEAN countries, Vietnam has the strongest prospects for economic and corporate profit growth,” said PYN Elite.
In fact, one of the driving forces pulling foreign cash flows back to the market recently was the attractive valuation of the market. The VN-Index ended 2022 at 1,007.09 points, equivalent to a decrease of 32.78% over the beginning of the year and in the Top Five markets with the strongest declines.
According to the AFC Vietnam Fund, Vietnam is one of the fastest-growing economies in the world, with GDP in 2022 growing by 8.02% and expected to gain 6% in 2023. Therefore, the recent decline in the stock market has brought the market valuation down to an extremely attractive level, with a forward P/E of 2023 at 8.1, compared to 11.5x in the Philippines, 12.5x in Malaysia, and 14.8x in Thailand.
“In our view, this creates an excellent buying opportunity for long-term investors. Another interesting thing is that, compared to the S&P 500, emerging markets are trading at a 34-year low. This makes investors consider whether all the bad news has already been reflected in the price and whether there will be any such opportunity in the next ten years,” AFC Vietnam Fund said.
Foreign investors also expect Vietnam’s market to be upgraded to an emerging market. According to JPMorgan’s CEO in the Asia-Pacific region, if it is upgraded to emerging market status, the market will receive approximately 5 billion USD from ETFs. Therefore, the fact that the market is in a period of low valuation is a very good opportunity to invest and hold.
In addition to an attractive valuation, the Vietnamese market benefits from other macro factors in the global market. Specifically, a weakening dollar helps capital flows move into emerging markets, or the reopening of China at the beginning of 2023 will help cash flows flock into markets in Asia such as Vietnam, India, the Republic of Korea, and Taiwan (China).