Rising inflation affecting all world markets

While some sellers may feel that the stock is at an unattractive price, some buyers may value the stock at bottom.

During the last few trading sessions, although the VN-Index continuously scored points, the market still faced many risks. This was due to the impact of the external macro situation, such as risks related to tight monetary policy under unpredictability in rising inflation across the world.

Caution in cash flow

Global inflation is driven by rising food and energy prices, especially because of the current ongoing Russia-Ukraine war. This conflict along with the risk of domestic inflation has become a major obstacle in the market's upward momentum, causing increasing caution in cash flow. According to statistics, the average trading value at HoSE in May through order matching continued to decrease by 33 percent compared to April, reaching VND13.82 trillion. Up until now, this is the lowest monthly liquidity since February 2021.

One of the factors that made cash flow cautious comes from the perception that the stock price is no longer attractive, making the opportunity to increase the price less. This is the reason why domestic organizations and individual investors raced to net sell in May. Specifically, domestic organizations net sold up to VND2.69 trillion, while individual investors net sold VND2.65 trillion. The net selling in May pushed the proportion of individual investors in the market trading structure to approximately 81.3 percent, the lowest level in more than a year.

After a long time, the cash flow of domestic organizations has been in the opposite direction compared to the cash flow of foreign investors. Previously, these two large investment groups were net sellers when the VN-Index fluctuated around the highs at the beginning of 2022, then both were net buyers from April when the index dropped sharply.

Foreign investors return

According to new data, foreign investors maintained their net buying position in May with a net buying value of VND1.01 trillion, through order matching transactions on HoSE. The stocks and fund certificates that were bought the most by foreign investors include FUEVFVND with net buying of VND612 billion, NLG with VND468 billion, DPM with VND464 billion, CTG with VND428 billion, and DCM with VND331 billion. The buying motivation of foreign investors comes from the view that the stock price level has bottomed out after the VN-Index decline lasting for two months. This decline put Vietnam in the top three of the world's most-falling stock markets in 2022, just behind Hungary and Russia.

According to Rong Viet Securities Company (VDSC), the strong net inflow in May was led by some large capital inflow, such as the foreign fund of Fubon FTSE Vietnam ETF and the domestic fund of VFMVN Diamond ETF. On the foreign ETF side, iShares MSCI Frontier and Select EM ETF recorded the largest net withdrawal of US$17.8 million, while Fubon received a net inflow of $474.4 million. Other foreign funds also recorded net withdrawals such as FTSE Vietnam ETF with $2.8 million, and KIM KINDEX Vietnam VN30 ETF with $17 million. Among domestic ETFs, VFMVN Diamond ETF witnessed a remarkable net inflow of $130 million. The remaining funds recorded net inflow but only of single digits.

According to statistics of Saigon Securities Company (SSI), total ETF capital inflow in May net injected nearly VND4.9 trillion, bringing the total value of accumulated capital inflow from the beginning of the year to VND6.7 trillion, the second highest level of the first five months of the year, only after the figure of VND13.1 trillion in 2021.

Cash flow expectation

The fact that foreign investors turned net buyers, although not strong enough, also created an expectation for new cash flow, and importantly a signal that the stock price is at an attractive level from the perspective of professional investors. According to VDSC, ETFs such as DCVFM VN Diamond or Fubon FTSE can maintain a net draw in the short-term, thanks to internal factors that the Vietnamese stock market is still more attractive compared to some countries in the region. As of 3 June 2022, the P/E valuation of the VN-Index was 13.9x, with forecast EPS growth in 2022 of 18 percent. Moreover, the fact that the Vietnamese dong is getting stronger against currencies of many countries and territories in the region such as Thailand and Taiwan, is also a positive factor supporting the trend of net withdrawal of ETFs in these markets.

Similarly, according to the latest stock market analyst report just released by SGI Capital, Vietnam is a rare market that has received strong net buying from foreign investors in the last two months. This is a contrasting phenomenon compared to the pressure to withdraw capital from many markets when the US Federal Reserve (FED) tightened monetary policy. Vietnam's solid macroeconomic fundamentals and distinctive long-term growth prospects and policies to make the market more transparent are necessary conditions for the capital market to develop effectively, attracting large capital flow continuously.

According to SGI Capital, the attraction to Vietnam's stock market also comes from the current market P/E valuation of less than 14x, even 12.5x by the end of the year. The recent financial market correction may have had short-term psychological effects on domestic investors, making the VN-Index fall. On the other hand, the stock markets of other countries in the region such as Indonesia, the Philippines, and Thailand are maintaining a long-term uptrend and are currently only adjusting down 3 percent to 5 percent from peak.

In addition to the return of foreign capital inflow, the stock market also received quite positive signals from domestic investors. According to data of the Securities Depository Center (VSD), domestic investors opened 476,455 new securities accounts in May, double that of the previous month and a record number in the history of the stock exchange. The number of new accounts opened by domestic investors in the last month were even 200,000 higher than the earlier peak set in March. Till the end of May, domestic investors opened more than 1.38 million new accounts, nearly equal to the full year figure of 2021 of 1.53 million accounts.