'Foreign capital will return to the Vietnamese market'

VinaCapital believes that the KRX system and the possibility of raising the market limit will make Vietnamese stocks more attractive to foreign investors this year.

Foreign investors had 6 net buying sessions from January 11-18 with a total value of nearly 600 billion VND on the HoSE. Banking and retail are the groups of stocks that they like to buy the most, notably MWG, HPG, STB, VCB...

Although the trend has not been clearly determined, the fact that foreign investors prioritize buying has helped stocks in the two industries mentioned above to surge over the past week. This move has also brought many expectations to the market as they had net sold more than 19,500 billion VND last year.

In a recent press conference, Ms. Nguyen Hoai Thu - General Director of VinaCapital Securities Investment, said that the withdrawal of foreign investors from Vietnam may be related to the story of other markets such as India and Japan having better performance. However, recently, this fund has recorded that these investors who withdrew their capital have contacted VinaCapital to invest again.

"This year, Vietnam has many opportunities in the stock market, private investment and real estate," said Ms. Thu.

One of the important arguments for the above forecast is the prospect of upgrading the Vietnamese stock market. According to VinaCapital's forecast, the KRX system (a new information technology system for the HoSE, allowing same-day trading) will come into operation in the first quarter and the margin requirement will be eliminated. As a result, the possibility of being classified as an emerging market by FTSE Russell will take place in the preliminary assessment stage in March and officially in September. As for MSCI, the expected time for upgrading is 2027. These are two of the three largest stock market rating organizations in the world , often considered as a reference basis for assessing the position in the eyes of international investors.

If Vietnam is upgraded to FTSE, the market will have 16 more funds tracking the capital flow of 90 billion USD. If upgraded to MSCI, the number of funds will be 844 with a total capital flow of 615 billion USD. According to VinaCapital's calculation, foreign capital flow into the Vietnamese stock market could reach 5-8 billion USD.

Also a foreign fund, Dragon Capital also has positive predictions about foreign capital inflows this year. The analysis team believes that foreign investors' participation may improve when there is positive information such as the untie of pre-funding or new steps in the process of upgrading to emerging market status.

Investors monitor price boards at a stock exchange in Ho Chi Minh City. Photo: Huu Khoa — Investors monitor price boards at a stock exchange in Ho Chi Minh City. Photo: *Huu Khoa*

In its 2024 outlook report, BIDV Securities (BSC) presented two scenarios for foreign capital flows. In the positive scenario, foreign capital flows will increase by a net $700 million, with supporting factors including a gradual narrowing of the interest rate gap between USD and VND as the US Federal Reserve (Fed) begins to cut interest rates. In addition, this scenario may be supported by the positive signals from the process of upgrading the primary emerging market as assessed by FTSE Russell and the gradual return of Thai investors to active activities after the new tax regulations take effect this year.

"Foreign investors will return to net buying, capital flows may be directed to large-cap stocks, and foreign 'room', meeting liquidity criteria, free-float ratio - is a preparation for when the market is upgraded," said this analysis group.

On the contrary, foreign investors may net sell 200 million USD by the end of 2024 if the above factors do not go smoothly.

More specifically, investment consultancy FIDT believes that foreign capital will not return to the Vietnamese market until the second half of 2024. At that time, domestic stocks will generally benefit from the prospect of foreign investors returning to developing economies in Asia when valuations in developed markets are high, no longer suitable for recession risks.

The Vietnamese market itself is also attractive due to its own stories. First, the KRX system and the expectation of market upgrade will become a platform to access strong foreign investment flows in the long term. Second, macroeconomic dynamics, although at low levels, still show clear signs of improvement. Monetary policy and exchange rate stability will continue to permeate the economy as expected this year.

Third, the risk of political instability is low. In the context of a fragmented world with many unpredictable risks, Vietnam, which is the focus of investment interest, will continue to be highly appreciated when maintaining a neutral position and continuously creating strategic relationships with major partners such as the US, China, Japan, etc. According to FIDT experts, this is also an important factor affecting the investment decisions of foreign capital flows.

Siddhartha

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