What expectations for foreign cash flows?

In February, individual investors bought in large numbers. It may be claimed that the "net withdrawal for Tet holiday" period has passed, and the group of private investors has resumed cash flow to the market, providing robust support because they own a big share of the market.

Domestic leads, foreign sells net

This group's cumulative transactions from the start of the year to the end of February totaled 4,544 billion, making it the market's largest net buyer. This buying power indicates that the market is reverting to a favorable trend, which boosts individual investor confidence and expectations. Individual investors focused on buying net stocks with large capitalizations such as NVL and MWG, which have the strength to pull the market, as well as the typical banking stock group such as VPB, ACB, MBB, etc., which have good cash attraction characteristics and will remain in the market until the trend ends. Aside from banking, other industries that draw financial flow from private investors include food and beverage, real estate, and basic resources.

In contrast to the strength of domestic individual investors, all other groups sold, with international investors briefly stopping selling and showing indications of balance at the end of February, producing a good psychological effect.

In the first trading hours of March, the individual group continued to outperform. The market, in particular, continues to record sessions with high share turnover and explosive liquidity, such as the session on March 4th, when the entire market transaction value exceeded 31,000 billion VND, with HoSE reaching more than 28,000 billion VND. During this frenetic session, foreign cash flow was entirely "overshadowed," with just roughly 60 billion VND net bought.

Looking back at trading sessions from the beginning of the year to the present, following a time of net purchasing at the start of the year, the trend of net selling by foreign investors resumed, with the selling trend expected to continue in 2023. As of February 28, foreign investors had net sold around VND 4,526 billion, with increased selling intensity following the Tet vacation, with seven straight net selling sessions, somewhat adversely influencing market sentiment. However, the selling trend has lessened, and foreign investors have switched to net buying in the last few sessions of the month as the market saw a little correction.

Banking was the sector most severely sold net by foreign investors in February, with a total value of VND 1,609.5 billion, in stark contrast to the net purchase in January. The majority of net sales came from codes VPB (-668.7 billion), STB (-303 billion), and TPB (-295.5 billion). Foreign investors exerted strong profit-taking pressure on the banking group following a sustained run of price hikes. Furthermore, the Food and Beverage industry is severely net withdrawn, with an emphasis on VNM (-564.5 billion). The majority of the selling pressure was absorbed by the domestic individual investor group.

Chemicals, on the other hand, is the only industry that has received considerable net investment from foreign investors, totaling 567.5 billion. The news mostly comes from DGC, with the semiconductor sector expected to increase by double digits in 2024. Foreign investors expect DGC, Asia's top business with the greatest yellow phosphorus export volume (raw material input in semiconductor and microcircuit fabrication), to gain significantly from the aforementioned trend.

Foreign capital is unlikely to return soon

According to the statistics shown above, (1) the trend of net selling by foreign investors continues, although there have been good indicators, and (2) the sector focused on net selling is banking, which has the greatest influence on the market and does not affect the positive flow of money. Mr. Phuong concluded that the impact of foreign cash flow on the market is no longer a major concern since private investors are the primary drivers of the market. With macro circumstances clearly separated between international and local macro, he predicts that the events in March will not be too different in terms of net purchasing and selling capital flow, particularly for foreign investors, because:

First, foreign capital flow is unlikely to return to the Vietnamese market very soon due to the protracted interest rate differential between nations, as well as the significant EPS projection disparity in the first half of 2024.

Second, global capital is moving out of stock investment funds as surprisingly high inflation data lowers expectations for the Fed's imminent interest rate decrease.

As a result, with US interest rates expected to stay favorable for at least a few months, global investment capital flow would prefer the US market (particularly bond investment funds) over other risky assets such as stocks in frontier and emerging countries like Vietnam.

Third, in comparison to other nations in the area, Vietnam is deviating from the norm by maintaining continual net selling. The selling force was strong in February, with a cumulative MTD of -90.7 million USD, bringing the whole YTD net selling value to -37.7 million USD (data as of February 29).

Furthermore, the DXY index has stayed high and is expected to rise again, 1.6% YTD to 103.86 (data as of February 29, 2024), which may put pressure on the VND to fall, at least in the first half of 2024.

ETF capital flow cannot lead yet

The receding prospect of an early Fed rate decrease has lowered the appeal of riskier assets, weighing down Asian ETFs. Major investment funds gradually remove cash from industrialized countries (including the United States). The capital flow of ETFs in the Asian market decreased in the last week of February. India and Japan, in particular, are attracting attention, with a record rebound occurring in the backdrop of the Chinese stock market, which is still in its early stages of recovery.

The growth of ETFs in the Vietnamese market continued to see capital withdrawals in February. With a total net withdrawal value of about -38.6 million USD, compared to a withdrawal amount of -63 million USD the previous month. The largest withdrawals occurred from the KIM KINDEX Vietnam VN30 Synth Fund (-16.7 trillion USD), DCVFMVN Diamond (-11.5 trillion USD), and DCVFMVN30 ETF (-11 trillion USD). Furthermore, the SSIAM VNFIN LEAD Fund had five straight months of net withdrawals, totaling -12.6 trillion USD in January.

In contrast, the Fubon fund continued to lead the distribution into the VN market in February, with 7.7 tr USD. This is also the only fund that has openly stated its determination to invest in the Vietnamese market despite the pattern of net withdrawals from other international and domestic funds.

As a result, it is premature to expect foreign capital flow to net join the Vietnamese market until the global macro narrative steadily improves and the Fed's interest rate decrease roadmap is apparent. Furthermore, the economic situation is likely to become clearer in the second half of 2024, with foreign capital flowing back into the Vietnamese stock market to support it.