Foreign investors remain optimistic about Vietnamese stock market

In 2022, this group net disbursed more than VND29.2 trillion (US$1.2 billion) to the market, while it has net sold nearly VND18.8 trillion and set a record net selling value of over VND62.2 trillion in 2021.

A study by BIDV Securities Company (BSC) analysing over US$50 billion owned by foreign investors on the Vietnamese stock market showed that more than half of foreign ownership is owned by strategic investors. This group usually holds stocks for the long term.

Foreign investors expect Vietnam’s market to be upgraded to an emerging market

The second group consists of investment funds, typically from Europe, that invest the majority of their assets in Vietnamese securities. These investors are attached to the development of the market, and the investment depends on the amount of money raised from investors.

There are also a group of index funds, which account for more than 10 percent of the number of shares held by foreign investors and operate quite flexibly, and a group of investors who buy securities through P-notes (participatory notes).

The market's drop in October and the first half of November prompted a cash inflow into the Vietnamese stock market. Positive cash flow spread across many ETFs.

Besides accelerating capital disbursement in the stock market, some signals showed that cash flow will continue to flow into the stock market in 2023.

In early December 2022, VanEck Vietnam ETF (VNM ETF) said that it agreed to change the benchmark index from MVIS Vietnam Index to Market Vector Vietnam Local Index. Accordingly, the MVIS Vietnam Index will be deleted and transferred to the Market Vector Vietnam Local Index.

With the change of the base index, VNM ETF is expected to increase the proportion of Vietnam to 100 percent, equivalent to more than US$100 million pouring into the domestic stock market. The expected effective date is March 17.

Factors attracting foreign investors

In a letter to investors last month, PYN Elite said that the market benchmark VN-Index hit the bottom in last November at 900 points and has the opportunity to grow positively in 2023.

"The confidence in the market improved. We expect the VN-Index to move in sync with Vietnamese economic growth and the expected increase in corporate profits in 2023. Among ASEAN countries, Vietnam has the strongest prospects for economic and corporate profit growth," said PYN Elite.

In fact, one of the driving forces pulling foreign cash flows back to the market recently was the attractive valuation of the market. The VN-Index ended 2022 at 1,007.09 points, equivalent to a decrease of 32.78 percent over the beginning of the year and in the Top Five markets with the strongest declines.

According to the AFC Vietnam Fund, Vietnam is one of the fastest-growing economies in the world, with GDP in 2022 growing by 8.02 percent and expected to gain 6 percent in 2023. Therefore, the recent decline in the stock market has brought the market valuation down to an extremely attractive level, with a forward P/E of 2023 at 8.1, compared to 11.5x in the Philippines, 12.5x in Malaysia, and 14.8x in Thailand.

Foreign investors also expect Vietnam’s market to be upgraded to an emerging market. According to JPMorgan's CEO in the Asia-Pacific region, if it is upgraded to emerging market status, the market will receive approximately US$5 billion from ETFs. Therefore, the fact that the market is in a period of low valuation is a very good opportunity to invest and hold.

In addition to an attractive valuation, the Vietnamese market benefits from other macro factors in the global market. Specifically, a weakening dollar helps capital flows move into emerging markets, or the reopening of China at the beginning of 2023 will help cash flows flock into markets in Asia such as Vietnam, India, the Republic of Korea, and Taiwan (China).