Unknown of foreign capital

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Foreign trading always has an influence on the common market. Photo: N.H.

Increase net selling

Following the net selling momentum in September, foreign investors remained net selling in the first week of October with a net selling volume of nearly 49 million units, worth more than 1,000 billion VND, up 192 percent in volume and increased nearly 7.5 times in value compared to the previous week. In particular, only on HoSE, foreign investors sold net in five consecutive sessions with total volume of more than 47 million units, worth 1,029 billion VND, 4.4 times higher than the previous week. Earlier, in September, foreign investors also net sold some 402 billion dong on HoSE. In particular, ETF funds were withdrawn a net 121 billion dong, down sharply from 460 billion dong in August.

Rong Viet Securities Company assesses that although the domestic aspect is favourable, the external environment still has risks when the world's largest economy, the US, tends to slow down. The US manufacturing index reached only 47.8 in September, the lowest point in 10 years. As a result, the market is betting more on whether the Fed will have to continue lowering interest rates by the end of October. Meanwhile, the development of trade war has greatly affected market sentiment during the past year. Brexit does not affect directly the Vietnamese market. However, the deadline for Britain to leave Europe is approaching, while the British Prime Minister has vowed not to extend membership. Therefore, in the event that the UK leaves Europe without an agreement, it may affect international markets and indirectly affect the Vietnamese market. ETF cash flow may continue to be affected in the near future. According to Rong Viet Securities, it is likely that foreign investors will continue to sell net on the security floor but will be less than last month.

In this context, according to the classification results of the stock market of countries, Vietnam is still on the list of upgrading to emerging market rank 2. Therefore, the opportunity for upgrading of the market Vietnam will have to wait until 2020 with FTSE and 2021 with MSCI. According to BSC Securities, foreign investors own about 20 percent of the market capitalisation and maintained net buying of about US$360 million in the first nine months of 2019. As a result, Vietnam is a rare country in the region attracting net buying of foreign investors. In addition to the net buying activity through the agreement, ETF funds played an active role in trading in nine months of 2019.

However, closed-end and open-end funds have not been able to increase their scale and transactions are mostly related to portfolio restructuring. Monetary easing of key economies can help cash flow back to emerging market areas. However, due to the delay, the cash flow is not expected to surge in the last three months of this year.

Expect new ETFs

Recently, HoSE announced the rules for building and managing three new index sets, including Vietnam Diamond Index, Vietnam Financial Select Index, Vietnam Leading Financial Index. The introduction of new index sets is expected to lead to the creation of ETFs. According to BSC experts, the stocks in the basket of these indices have mostly expired allowed buying proportion of foreign sector. Therefore, the introduction of these ETFs will partly solve a part of investment demand of foreign investors in quality stocks which is no longer available or the room is negligible. This has been reflected in the internal ETF fund VFMVN30 ETF which has continuously attracted South Korean and Thai investors in recent years.

It is predicted that these indexes will soon be published by HoSE and ETFs based on the index coming into the fourth quarter of this year, which can attract foreign capital flows and support the market.

In addition, most security experts consider that the fourth quarter of 2019 will be the best-performing quarter this year. GDP growth in nine months of 2019 reached 6.98 percent over the same period last year - this is the highest increase in the past nine years. The country's trade surplus of goods from the beginning of the year to the middle of September reached $5.57 billion - which explains the stability of the VND and the appreciation of regional currencies. The USD/VND exchange rate remained stable in the context of fluctuating foreign exchange market, which increased confidence for foreign investors and stabilised macro environment for investors and import-export enterprises.

The business results announcement season for the third quarter of 2019 is also about to start, which will greatly affect the stock price movements of each enterprises as well as the market in the last months of the year. Thus, despite the fact that the two previous quarters showed that the negative news from the world market often has a greater influence than the positive information, but observing the domestic macro context as well as developments in the stock market, Vietnam's stock market in the fourth quarter is likely to prosper.