Investors keep faith despite trade war

Vu Minh Duc, Senior research manager, Viet Capital Securities

Foreigners’ net selling on Vietnam’s stock market is indeed part of a broader trend in emerging markets. However, data shows that in the first eight months of 2018, foreign investors net bought VND32.4 trillion ($1.43 billion) worth of Vietnamese equities, while they trimmed down their portfolios in the Philippines, Indonesia, and Thailand.

In foreign investors’ eyes, Vietnam has its own appeal in terms of increasing openness to the global economy, the prospects of an upgrade to the emerging market status, and the larger size of the market overall. The US Federal Reserve may hike rates again this year and the US-China trade war may worsen, but I think any net selling in Vietnam will decrease as 2018 comes to an end.

I believe that with the bright prospects of Vietnam’s economy and the stock market from now until 2020, Vietnam can retain and attract more long-term investors. Short-term capital may flow in via exchange-traded funds or P-Notes, but these kind of inflows are highly volatile and susceptible to global tensions.

Mattias Martinsson, Chief investment officer, Tundra Vietnam Fund

Our Tundra Vietnam Fund grew by 8.4 per cent in August, outperforming the benchmark VN-Index. The fund has a tilt towards mid-caps and structural growth stories that are likely to benefit from Vietnam’s economic growth and consumerism.

On the whole, in August, foreigners remained net sellers in Vietnam to the tune of $71.6 million. An analysis of foreign flows offers a comforting perspective, as the main sell-off came from Vingroup stocks (Vincom, Vinhomes, and Vincom Retail) with a total value of $126 million. This means that foreigners were net buyers otherwise.

The latest macro-economic numbers of Vietnam continue to signal positive momentum as geopolitical risks seem to be at bay. The VND stabilised, foreign direct investment continues to grow, and inflation in August inched up by 3.98 per cent year-on-year.

In August, Vietnam’s State Securities Commission also mentioned that the government would do its best, in terms of policy making, to help Vietnam secure a place in the MSCI Emerging Market Index within two years.

Nguyen Duc Hung Linh, Head of Retail Research, Saigon Securities Incorporation

The US-China trade war is unlikely to end anytime soon. Because these nations are among Vietnam’s biggest trading partners, we should prepare ourselves. Foreign investors may feel inclined to withdraw from emerging markets with higher risks and return to the US. Four upcoming rate hikes by the Federal Reserve may also be a reason.

Of course, trade wars and capital outflow trends bring challenges, but they can also become an opportunity for Vietnam to restructure its economy and grow stronger. We believe that the most viable solution is to boost Vietnam’s domestic demand and supply, strengthening its internal power. This includes maintaining strong economic growth, restructuring state-owned enterprises, and increasing high-quality supply to the stock market. A market upgrade is also advisable to retain Vietnam’s appeal to foreign investors.

As Vietnam needs to compete against hundreds of other markets around the world, promoting itself as an investment destination may also need a concerted effort by the government, companies, brokerages, and other stakeholders.

Petri Deryng - Portfolio manager, PYN Elite Fund

A strong USD raises the dollar-denominated liabilities of many indebted countries, and USD interest rates have been rising in addition to a deepening trade war.

However, in Vietnam, the overall risk is reasonably manageable, unlike in other countries which are more at risk due to their vulnerability to constant current account deficits, such as Turkey.

Due to strong economic growth, Vietnam’s foreign debt ratio is still below 50 per cent of GDP. Many of Vietnam’s long-term loans are not market-based. Instead, they are tied to bilateral projects with fixed low interest rates and are not always denominated in USD.

At the same time, Vietnam’s current account has been in surplus, and foreign exchange reserves have risen five-fold over six years. Vietnamese exports are growing and the outlook for listed companies is good.

The fundamentals of the economy are stable and the growth prospects are excellent. As external threats are removed, the Vietnamese stock market could resume its rising trend.