Decoding recent transactions of foreign investors on the stock market

The downward movement of VN-Index was in line with the net matching of foreign investors.

Deliberately discharge goods?

After touching the strong support at 920-930 and recovering slightly in early June, the VN-Index continued to fall deeply, breaking the 900 level, to the lowest level of 893.16 points on July 11, down 25.8% from the peak of 1,204 points, and down 9.3% compared to the end of 2017. Investors' psychology was negatively affected by events in the international market such as by the FED raising interest rates, escalating trade tension between the United States and partners made the market index unable to escape the downtrend. The domestic market lacked supportive information, while MSCI did not consider upgrading its rating to the Vietnamese market, making investors shy in disbursement, which was reflected in June market liquidity data with the average trading value of 5,623 billion VND, and continued to fall below 4,000 billion VND in July, the lowest level in 17 months.

Many investors have suffered pain in the long chain of price reduction. According to Viet Dragon Securities Company (VDSC), the decline of VN-Index has wiped out the results that investors earned from the beginning of the year. In fact, 70% of the shares have liquidity decreased compared to the end of 2017. Accordingly, "foreign investors discharge", "foreign net sales", "foreign capital withdrawal" are phrases that were mentioned most of the time and is also believed to be the cause of market negativity.

Mr. Hoang Thach Lan, Head of Personal Investment Advisory Department of VDSC also said that foreign investors as net sellers was one of the main factors causing the market to decline. In the past, the stock market has been shaken before by foreign investors’ transactions, such as 2008, early 2011, the second half of 2014... The foreign net sale psychologically impacted domestic confidence, leading to a sharp drop in prices. Mr. Lan recalled the story in 2014 when Brent crude oil dropped sharply from 112 USD to 45 USD a barrel for the period July to December 2014. At the same time, foreigners sold off oil and gas stocks such as GAS, DPM, PVS, PVD... and Mr. Lan also suffered heavy losses from holding PVD shares due to the sharp drop from 125,000 VND / unit to 65,000 VND / unit, then continued falling to 30,000 VND / unit.

Back to the current situation, statistics show that foreigners were net sellers only in July. However, after breaking two of VHM in May and YEG deals in June, Mr. Lan sees that foreigners were net sellers in the previous two months. "Foreigners were net sellers in the leading stocks on the HoSE, both selling and trying to sell their stocks, and seemingly did not care about valuation, so it negatively impacted the VN Index," said Mr. Lan. Typically, foreigners were net sellers with VIC, VRE, HPG, MSN, VJC... although these are all stocks recommended by big securities companies.

Commenting on the reasons for the net sale by the foreign block, Mr. Marc Djandji, Director of Corporate Brokerage Organizations of VDSC said that capital outflow from the market is mostly due to impact from outside factors instead of internal factors of Vietnam. Internal factors, if any, are due to the recent "hot" stock and investment funds that balance the portfolio will convert their investment into lower priced stocks, moving from growth stocks to defense stocks. Mr. Bernard Lapointe, Director of the VDSC's Research and Investment Advisory Department, said that the size of the Vietnamese market was relatively small, so the outflow of foreign capital caused great pressure on the market. Four factors that put pressure on the stock market are the strength of the dollar, the price of oil, the pressure on minimum wages and factors related to US President Donald Trump.

Who is the seller?

The long-term net sell was very large, but not much information was disclosed at this time. So the question is who is the seller?

According to Mr. Lan, the list of the State Securities Commission is currently holding only 25 registered foreign funds in Vietnam. However, data from the Securities Depository Center shows up to 3,100 accounts of foreign institutional investors have been granted transaction codes in Vietnam. "In my opinion, among the 3,100 institutional investors, most are investment funds," he said. This proves that there are many foreign funds trading but not registered, but only open accounts at banks with custody functions. These funds traded on the Vietnamese market with an insufficient 1% change in value to disclose information are the main net sellers in the market.

Mr. Lan said that this failure would make the State Securities Commission unable to control the amount of money in the market, because the current stock market of Vietnam limits the proportion of ownership of foreign investors and certain conditions for foreign investors when they invest in sectors that have conditions. "It may be due to complicated registration procedures, no online registration tools... so foreign investors do not register and they find that the registration did not affect anything," said Mr. Lan. Accordingly, in addition to simplifying procedures, the State should have sanctions to force foreign funds to make a registration when trading in Vietnam.

In the July market, experts said that foreign investors may continue to be net sellers; however, selling pressure will not be as strong as in May. Accordingly, foreign investors' transactions were strongly affected by the world economic and financial news, especially from the U.S. For the general market, the VN-Index returned to the 1,000 mark from the good news in the second quarter financial report with the banking sector. Investors' sentiment is also recovering as cash flow is pouring into many large caps and cheap expectations... Besides, the good news is that the number of foreign investors' increase. Specifically, over 600 transaction codes were issued to foreign investors in May. Most recently, 465 trading codes were issued to foreign investors in June. The stock market in Vietnam is still very attractive and attracts the attention of foreign investors.