February 28, 2020 06:00

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Expectation of foreign capital is more positive in 2020

09:45 | 20/01/2020

VCN- After a year full of fluctuations in foreign investors' transactions, it is forecasted that Vietnam will have the opportunity to attract foreign capital thanks to the development of new ETFs as well as the possibility of being upgraded to emerging market status.  

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The problem of private economic development together with market upgrading will make a difference to attracting foreign capital even when the overall context is not favourable. Photo: N.H

Fluctuations in foreign capital

Foreign investors were net buyers of more than 6.56 trillion dong on HoSE in 2019. However, the buying came from a few big M&A transactions with the highlight being SK's VIC purchase on May 21. The total value of the VIC buying agreements in this session reached more than 5.82 trillion VND, accounting for two thirds of net buying value through the whole year. With the matching channel, foreign investors net sold 1, 67 trillion dong in which most of the net selling value focused on the last five months (5.3 trillion dong), contrary to the trend of net buying in the first four months (2.8 trillion dong).

Because matching orders have great influence on stock prices, the market trend is similar. A positive point is that despite strong net selling pressure at the end of the year, the VNIndex did not return to the starting point. This was partly due to leading stocks such as VCB and BID seeing little net selling pressure. In the last five months, VCB was only net sold 156 billion dong and BID was net bought to the tune of 256 billion dong on the matching channel. Another reason is large-cap stocks with basic fundamentals like VNM came down to lower prices.

Compared to the trend of net buying and selling of foreign investors, cash flow through the ETF channel was more positive. ETFs continuously had cash inflows in the first seven months and the whole year ETFs brought relatively large net value. Per statistics with the three funds VFM VN30, Van Eck ETF and DB FTSE, total net buying value exceeded VND 5 trillion, of which VFMVN30 accounted for 47 percent.

The net buying trend of ETFs in some periods was different from emerging market capital. In June when ETFs in Vietnam had good cash inflow, EM funds had cash outflows. By the end of the year when emerging market management funds (EM funds) had strong cash inflows, capital inflows into ETFs in Vietnam were still slow. The "delay" of foreign capital flows through ETFs was one reason why the VN-Index was not able to break out like the MSCI EM Index.

Opportunity to attract capital in 2020

According to SSI Securities Company, capital flowed into emerging markets from October 2018 to February 2019 with a total of nearly US$40 billion. After three months of trade tensions, the "ceasefire" statement between the US and China is considered a starting point for positive sentiment and reversed capital flows.

SSI’s assessment for the current context is similar. The US and China certainly a phase one agreement. Capital inflows into stocks have begun to diverge between developed and emerging markets. On the way to conquering new highs of the US stock index, cash flow of funds into US stocks has never recorded three consecutive weeks of cash inflow. By the end of December, up to 23.6 billion USD was withdrawn from the US market, the highest amount in a year. In contrast, capital inflows into emerging markets recorded USD 21.2 billion in nine consecutive weeks in which the destinations were mainly global funds (GEM) and Asia (foreign), except Japan.

The monthly Bank of America Merrill Lynch (BAML) survey showed that global fund managers are more optimistic. In the December 2019 survey, up to 29 percent of 247 fund managers (with total assets under management of $745 billion) said the global economy 2020 would accelerate. The proportion of asset investment in stocks has increased continuously in the last four months of the survey, changing from 12 percent "less satisfactory" (August 2019) "to outstanding prospects" 31 percent (12/2019) - the highest level in 2019.

In addition to capital allocation of the global investment strategy, Vietnam's market in 2020 will witness many new ETFs that imitate the VN30 index as well as a set of three new indexes of the HOSE. Vietnam’s stock market is also being considered for upgrading by FTSE and there is the only one unsatisfactory payment criteria. If there are steps to clear this condition, foreign investors will very quickly seize the opportunity to enter Vietnam.

According to international investors, things that can make big changes in the economic or stock market will be an interesting story. In 2015, when China was likely to be upgraded to an emerging market, foreign cash flow poured into the country (although China has not been upgraded yet, so the cash flow has also slowed sharply). By the end of 2016, Brazil had a new president who had friendly ways with business, similar to the US with President Donald Trump. This has spurred capital inflows to Brazil and the US in 2017. “For Vietnam, combining the problem of private economic development with market upgrading will make a difference and so capital flows can be attracted even when the overall situation is unfavourable,” the report of SSI said.

By Khai Ky/Bui Diep