Attract foreign capital into the stock market

It is predicted that foreign capital flows into the Vietnamese market will see positive signs. Photo: Internet

Foreign investors have been net-buying from early in the year

The continuous raising of interest rates by US Federal Reserve System (FED), making the rate rise to the highest level since the global crisis in 2008, has caused global capital flows to be unstable when costs increase. However, in Vietnam’sstock market, foreign investors have continuously been net buyers in recent years. Since the beginning of the year, foreign investorshave net bought about VND7,300 billion.

The restructuring of investment capital flows into emerging markets and frontier markets is expected to take place strongly, this change of capital flows will have a direct impact on Vietnam's stock market. However, Vietnam's GDP growth rate of over 8% in the previous year, the expected rate of 6.5% this year, the plunge of Vietnam's stock market last year, and P/E ratio of 10x - the most attractive level in the past ten years since 2012, are positive signs that foreign capital inflows may still pour in Vietnam's stock market.

“Motivated by the forecast of Vietnam's economic growth this year, the attractive valuation of the current stock market, foreign capital inflows pouring into the Vietnamese market are predicted to remain positive in the near future”, said Mr. Yun Hang Jin, Chairman of Members’ Council of KIM Vietnam Fund Management Company (KIM Vietnam).

He said that since August 2019, foreign investors were net selling continuously, but since the fourth quarter of 2022, theyhave been net buying and extended their net buying momentum. This cash flow also contributed to the recovery of Vietnam's stock market after a prolonged decline.

In addition, from 2007 to March 2023, the net transaction value of foreign investors is VND72,000 billion, Vietnam is becoming a potential destination for many businesses in expanding their production chain post-pandemic. Many foreign investors visited Vietnam last year, so it is expected that FDI inflows will resume the increase this year, with a focus on restoring newly registered capital flows and M&A inflows. Foreign investors are expected to resume investment in the Vietnamese stock market.

“Vietnam's stock market is currently relatively attractive compared to other countries. If economic indicators remain stable, it is forecasted that foreign capital flows will continue to pour into the Vietnamese market. In February and March, we also conducted many promotional campaigns in Korea, Japan and Thailand to introduce Vietnam's economic potential and people,’’ said Mr. Yun. Hang Jin.

Implementing solutions to remove restrictions on foreign investment

Regarding attracting foreign investors to Vietnam's stock market, Mr. KOJIMA Kazunobu, JICA Consultant, Chief Consultant, Daiwa Research Institute said that MCSI assessed that the Vietnamese stock market haseasier access conditions for investors. The fundamental and most significant problem for the Vietnam market is the foreign ownership limit  (FOL) ratio and the limit  ratio applicable to foreign investors as stipulated in the company's charter. For foreign investors to have easier access to the Vietnamese stock market, it is necessary to consider adjusting the foreign ownership ratio. Improvingthe foreign ownership ratio is also an essential condition to upgrade Vietnam's stock market.

According to Mr. Do Bao Ngoc, Deputy General Director of KienThiet Securities Vietnam, besides the attractive factors of valuation and transparency, Vietnam should apply a newtechnology system to provide new products to help investors have tools to prevent risks; speed up the equitization process of SOEs, creating quality goods for the market, helping to rapidly increase the scale of Vietnam's stock market to meet the investment standards of foreign investors; accelerate the opening room for foreign investors in many conditional business lines and sector to increase attract foreign capital.

Mr. Vu Chi Dung, Director of the International Cooperation Department, State Securities Commission (SSC), said that one of the effective solutions is the issuance of a Non-voting depositary receipt (NVRD). The regulation of NVDR is to help foreign investors who want totrade shares of public companies that have run out of foreign room or conditional industries.

The Securities Law 2019, the Enterprise Law 2020, and Decree 155/2020/ND-CP provide regulations related to NVDR, creating a premise for developing a legal framework for product deployment in the future. To execute NVDR, it is necessary to prepare the trading system, operating mechanism as well as specific guiding regulations.

According to Mr. Dung, through the Joint Capital Market Development Program (J-CAP), the World Bank supports the State Securities Commission in finding experts to develop an NVDR research project for the stock market. The implementation of the portal on transactions outsidethe limit  of foreign investors for stocks that have run out of foreign room is also considered.

This solution provides information about foreign investors' transactions outside the limit , including price information and in real-time. However, this requires upgrading the information technology systems of the Stock Exchanges and securities companies.