Experts explain investors' net selling in 2023

Foreign investors at the derivatives market's inauguration in the headquarters of Hà Nội Stock Exchange. — Photo courtesy of HNX

HÀ NỘI — Although the market benchmark VN-Index closed last year with a gain of 12.2 per cent, foreign investors were less positive with strong net selling.

Việt Dragon Securities JSC (VDSC) said that the strong net selling trend that happened in December 2023 will slow down with an improvement in profit outlook scenario, resulting in a more balanced price-to-earnings ratio (P/E) for international investors.

The scenario in which the US Federal Reserve lowers interest rates will also stimulate cash flow from the currency market back into international capital markets.

Similarly, experts from Bảo Việt Securities JSC (BVSC) expect that the Fed will likely stop rate hikes and could reduce interest rates in the second half of 2024.

The lower interest rates will lead to a depreciation in the US index, helping investment capital move back to emerging markets.

Foreign capital flows also show investors' more interest in the Vietnamese market amid a weakening US dollar. Additionally, the opportunity for Việt Nam’s stock market to upgrade in 2024 will be a factor in attracting foreign cash flow.

Nguyễn Thế Minh, head of the Individual Customer Analysis Division at the Yuanta Vietnam Securities Company, said that markets such as the US and Europe experienced superior performance compared to Asian markets in 2023, attracting investors to these markets for investments.

After the recession, countries with good health, such as those in Europe and the US, will recover very strongly. That is also the reason why investors withdraw capital from the Asian markets and move to other markets, the expert explained.

"Net selling is a portfolio restructuring activity of foreign investors, so it is expected that foreign investors will soon net buy in early 2024," Minh said.

Meanwhile, SSI Securities Joint Stock Corporation (SSI) said that in 2023, stocks that received support from foreign cash flow all reported higher profit rates than the group that saw strong net selling activities.

Last month, foreign investors significantly increased the net selling value to VNĐ10 trillion (US$408 million), making it the strongest monthly net withdrawal in 2023. Foreign investors' influence reached its highest transaction proportion of 9.86 per cent since April.

This reflected a consistent trend throughout 2023, with total net selling value reaching VNĐ22.8 trillion, according to SSI.

Foreign investors were widely engaged in net selling in December, with the highest net selling recorded in the banking and financial services industries at VNĐ2.6 trillion. Other key sectors, such as real estate and food and beverage, also faced a similar trend.

Notably, foreign investors decreased their allocation in the basic resources industry, with a net selling value of VNĐ991 billion, following a consistent net buying since the beginning of 2023.

The information technology (IT) sector was bought the most by foreign investors in December, amounting to VNĐ101 billion. It was followed by the retail sector with a net buying value of VNĐ80 billion, snapping a continuous net selling streak that lasted for five months.

SSI believes that in the medium term, investment inflows into the Vietnamese market could benefit from the shift of funds towards emerging markets. However, this is likely to occur only after the Fed begins rate cuts.

In the short term, the attractiveness of Vietnamese stocks to investors from Thailand and South Korea may be affected by new regulations and plans implemented by their respective governments to boost domestic stock markets.

In 2023, the net selling trend by foreign investors was not limit ed to Việt Nam but was also observed in other countries in the region. The outflow pressure in Southeast Asia occurred as interest rates in developed countries, particularly the US, remained high for an extended period. This led to a tendency for capital to return to developed countries while withdrawing from emerging nations.

Đỗ Bảo Ngọc, Deputy General Director of Vietnam Construction Securities (CSI), said that the net selling by foreign investors is not only happening in Việt Nam but also in other Asian markets, such as Thailand, Indonesia, and China.

Ngọc believes that there may be an international capital outflow from Asian exchange-traded funds (ETFs) into US ETFs. The international capital shift was also one of the reasons for the Vietnamese stock market to experience net selling.

Meanwhile, securities investors have been facing difficulties making profits in the Vietnamese stock market since late September. This has led to a tendency for indirect investment capital, especially speculative funds, to withdraw and seek opportunities in more favourable markets.

The continuous net selling by foreign investors, with significant value, has hindered domestic funds and acted as the main obstacle to the recovery of domestic stock indices in 2023.

However, given potentials of the Vietnamese market in 2024, foreign capital is expected to return to the stock market, experts said.