Vietnam faces volatile foreign capital inflow

Although the direction of foreign capital inflow is becoming increasingly unpredictable due to many external factors, experts say that Vietnam is still an attractive destination for foreign investors.

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According to the General Statistics Office, although the stock market experienced strong volatility in the first six months of this year, foreign indirect investment (FII) value increased sharply by 82.4 per cent, reaching US$4.1 billion.

Leaders of securities companies said that this was a positive signal for the Vietnamese stock market as this period witnessed a wave of foreign investors’ capital withdrawal from emerging markets to shift towards the US market due to the increasing attractiveness of the US dollar.

According to Bloomberg, in the first half of 2018, more than $19 billion in foreign capital was withdrawn from emerging markets in Asia.

It should be some consolation, experts said, that Vietnam faced a somewhat better situation than its counterparts such as Indonesia, Thailand and the Philippines.

Dominic Scriven, Chairman of Dragon Capital, quoted a recent survey indicating that in the first half of this year, foreign investors withdrew $5.6 billion from the Thai market, $3.7 billion from Indonesia and $1.6 billion from the Philippines.

Meanwhile, according to data from Vietcombank Securities Company (VCBS), foreign investors still net bought nearly $1.5 billion on the Vietnamese stock market.

According to VCBS, regardless of the general withdrawal trend of foreign capital in emerging markets, cash flow from countries such as Japan and South Korea into Vietnam was still trending upwards.

The price to earnings (P/E) ratio of the Vietnamese securities market has increased to 16.6 times, the highest since 2008, and is no longer cheap in comparison with other regional markets. According to Viet Dragon Securities (VDSC), the market is becoming more attractive, promising to open up better buying opportunities for investors.

Nguyen The Minh, head of analysis at Yuanta Securities Vietnam Co, said it was the quarterly portfolio reviews of exchange-traded funds (ETFs) in Vietnam that forced investors to sell stocks to restructure their investment category.

Sharing the same view, Hoang Viet Phuong, Senior Director of Institutional Research & Investment Advisory at Saigon Securities Inc. (SSI) said that the movement of foreign capital flow was a strategic issue relating to investment organisation.

External risks

Steady economic growth and political stability are considered by analysts as advantages that make Viet Nam an attractive investment destination. However, Vietnam’s stock market still faces many external risks.

In the third quarter of 2018, the escalating global trade war plus the US Federal Reserves (Fed)’s interest rate hike have made the emerging stock markets less attractive.

The market has been also bearing the burden of the massive net selling by foreign investors in response to the appreciation of the US dollar against other currencies after the Fed raised interest rates.

Although the trading value of foreign investors only accounted for 15 to 18 per cent of the total Vietnamese stock market’s trading value, any movement in foreign capital flow would have a great impact on local investors’ psychology, especially in the context of emerging new external risks.

In the short term, according to SSI, exchange rate movements are important factors that investors need to follow as it is likely to affect the growth prospects of listed companies.

According to experts, thanks to these various risks, it will be difficult to predict which sector will lead the market. It is likely that some individual large-cap stocks with good business performance will be the drivers of the market, attracting foreign traders.

In particular, foreign investors will also focus more on IPO deals and capital divestments at large State-owned enterprises.


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