Domestic capital backs Vietnam’s stock market

Although many foreign investors continued to net sell thousands of billions of Vietnamese dong, Vietnam’s stock market still managed to recover positively thanks to the dynamic participation of domestic investors.

An investor monitors stocks on the HOSE. (Photo: SGGP)

An investor monitors stocks on the HOSE. (Photo: SGGP)

Despite the strong recovery of the stock market in April this year, currently, foreign investors keep net selling for more than VND6.8 trillion. Two months ago when the Covid-19 pandemic happened complicatedly around the world, foreign investors dumped shares heavily, affecting the sentiment of investors in the market. Several large-cap stocks were sold heavily by foreign investors so by the end of March, the VN-Index plummeted by nearly 26 percent.

In the first four months of this year, foreign investors only net bought strongly in January, especially before the lunar New Year. Accordingly, in the first four months, they have net sold VND16.8 trillion (US$716 million) with a total trading volume of around 874 million shares. Meanwhile, they net bought VND7.3 billion in 2019.

These movements showed that from February to now, regardless of the fact that the market slumped or recovered, this sector still maintained net selling of hundreds of billions of Vietnamese dong each trading session. On March 20 alone, they net sold up to nearly VND1 trillion. In the first two trading sessions of May, this sector continued to net sell VND120-VND130 billion per trading session.

In contrast to the continuous outflow of foreign capital, domestic capital has entered the game quite well after the VN-Index lost more than 30 percent from the beginning of this year to the end of March. The robust participation of domestic investors was the main reason that helped Vietnam’s stock market to recover positively in April.

Statistics by securities companies showed that in March and April this year, the number of new accounts was more than 52,000 with a net value recorded from VND100 million to VND500 million per account. One of the reasons that made the market attract the domestic cash flow in recent months was increasing bottom-fishing demand when the market plunged heavily.

At the same time, the period of social distancing was also a good opportunity to draw investors into the stock market because investors were still able to make buying or selling orders from home. The new cash flow of domestic investors into the stock market amid the context that foreign ones constantly withdrew investment capital has contributed to supporting and improving market liquidity.

However, experts said that this cash flow would not be stable as the financial capacity of domestic investors is limited. And, once the market does not receive any new cash flow, it is difficult for it to maintain solid growth momentum.

It was recorded that market liquidity in the first two trading sessions of May dropped drastically to merely VND3.7 trillion or VND4 trillion per trading session. Investors in the market currently are cautious due to the investment strategy ‘Sell in May and go away’.

However, many experts believe that the worst has reflected relatively fully into the market before, so in May, the pressure of correction will be less intense. Besides, this year’s May is the time to receive business results and publish documents of the shareholders' meeting of enterprises and the information about the books closing date (due to Covid-19 pandemic, many enterprises have delayed their shareholders' meetings to May).

At the same time, the fight against the Covid-19 pandemic in Vietnam showed positive results, so the economy might recover more quickly, making investors’ sentiment more optimistic.

Regarding the prospects of the stock market in the future, Mr. Don Lam, CEO of VinaCapital, said that Vietnam’s stock market corrected significantly in the first quarter of this year, volatilizing more than 30 percent. Although the market resurrected impressively in April, the current average price of shares remains much lower than that in the time before the Covid-19 pandemic.

At present, Vietnam’s stock market is trading with the Price to Earnings Ratio at around 10.3 – the cheapest level since 2012 and the lowest level in the region. This is definitely an attractive opportunity for investors to buy shares. Accordingly, when the recovery process begins, basic sectors will be paid attention. Enterprises with healthy financial statements and good market share will grow again.

With 20 years of experience in investing in Vietnam's stock market and an investment of $5 billion in Vietnam's stock market, Mr. Don Lam said that investing in Vietnam is like any other emerging or marginal market, all come with risks. However, investing in Vietnam's stock market needs a long-term view. The age of picking "low-hanging fruit" and earning money quickly has passed. Therefore, patience is important when investing in Vietnam.

Mr. Don Lam also affirmed that Vietnam has been and will continue to be a great destination for investment. Although the time of global recovery has not been determined, Vietnam is in a good position to recover quickly. Even if the gross domestic product forecast has been revised due to the impacts of the Covid-19 pandemic, Vietnam is still one of the fastest-growing economies in the region and the world.

By Nhung Nguyen – Translated by Thuy Doan

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