However, it is still not clear whether the foreign investors will continue this net buying trend in the near future and if this move will be enough to push the VN Index up again.
Strong net buying
In 2022, individual domestic investors net sold about VND 14,800 bln after a strong net buying of VND 88,756 bln in 2021. This is one of the main reasons for the VN Index deep drop last year. On the other hand, foreign investors actively disbursed during a deep decline in the market. Foreign investors net bought about VND 30,000 bln on all of the three stock exchanges in the last two months of 2022, when they valued the market at an attractive level with a P/E of about 10x, the lowest in the last ten years. According to statistics, foreign investors started net buying from November 2022 with a net buying value of VND 30,147 bln, accounting for 4.5% of the total transaction value on HoSE, with the average transaction rate of foreign investors accounting to 12%.
According to the Vietnam Yuanta Securities Company (YSVN), this is considered one of the three most prominent net buying periods for foreign investors on the Vietnam stock market since its establishment. The two previous periods of net buying were from January 2012 to August 2014, and from January 2017 to August 2019. In the first period, foreign investors net bought VND 14,273 bln, accounting to 1.8% of the total trading value on HoSE within 32 months, with the average transaction rate accounting to 15%. In the second period, foreign investors net bought VND 80,484 bln, accounting for 2.7% of the total trading value on HoSE within 32 months, and the average transaction rate accounting to 16%.
ETF capital flow
Regarding the latest net buying move of foreign investors from November 2022 to the current date, it is easy to see a clear similarity to the two previous periods. Firstly, the VN Index had a more positive movement after a previous strong decline. The next similarity is that the net buying volume from Exchange Traded Fund (ETF) always played a large part in the periods of net buying of foreign investors, sometimes upto 80%. In the current period of net buying, ETF accounts for 56.8% of the total net buying value of foreign investors.
It can be affirmed that the trend of ETF capital flow into the Vietnam stock market is very positive. While the rate of ETF capital flow from the US and Europe has decreased compared to ten years ago, the flow of ETF money from Asian countries and domestic ETF is keeping the trend strong. Even ETFs from Asian countries and domestic ETFs maintained net buying momentum during the period of strong net selling by foreign investors between 2019 to 2021.
According to YSVN, there were two boom periods for ETFs in Vietnam. In the period between 2008 and 2014, there were eight funds established with a relatively low initial scale but maintaining a continuous net attraction so far. These ETFs are mainly from the US and Europe. In the period from 2018 to now, there have been 13 new established ETFs, mainly ETFs that invest 100% of Vietnamese stocks with a larger initial scale than in the previous periods.
Foreign cash flow
In 2023, the economy in general and the stock market in particular are expected to face reverse trends, at least in the first half of 2023. Accordingly, the negative factors affecting the stock market are the FED interest rate hike, the world economic recession, and the system liquidity when there is a large number of bonds maturing in the coming second quarter. However, the general opinion of analysts is that the current price level is largely reflective of the most negative prospects of 2022 and for the whole of 2023.
According to Viet Dragon Securities Company (VDSC), the market P/E valuation only dropped to 9x to 11x during macro challenging periods. Therefore, buying and holding stocks when the market P/E is at the current price will bring about a high investment yield that is superior to the savings interest rate, if investment is for a period of two years. Analysts of the Bao Viet Securities Company (BVSC) believe that the bottom forming areas of major growth cycles of the VN Index in the past often fell in the P/E range of 9x to 10x. This can be considered a relatively attractive valuation for the disbursement of medium and long-term investment cash flow.
Compared to neighboring countries, Vietnam is considered a relatively stable macro economy with a positive growth rate. According to forecasts of various economic organizations, Vietnam's GDP growth rate can still achieve a positive rate of 6% to 7% in 2023. Other macro fundamentals including interest rates, inflation, and exchange rates are expected to be significantly more stable compared to other countries in the region. Therefore, macro factors and attractive valuation as analyzed above are factors for the ETF to continue to attract foreign cash flow in 2023.
It is not possible to confirm that the return of foreign investors will be able to balance the net selling orders of domestic individual investors, but the net buying of foreign investors will definitely make a difference. With a stock market where individual investors still account for a large portion; this difference will be felt strongly. In fact, there have been many opinions that individual investors in the country can refer to the investment strategy of ETFs to limit risks. For instance, VDSC recommends that investors who choose good stocks from the index baskets that these ETFs refer to may help individual investor portfolios be less vulnerable to the sharp decline in the market.
