Uncertainty over foreign net selling

Since mid-July, overseas investors have net sold $287.6 million worth of stocks, Photo: Le Toan

Gloomy weather

The net selling trend of foreign investors on the Vietnamese stock market, which started in April, seems to be continuing. Since mid-July, overseas investors have net sold VND6.5 trillion ($287.6 million) worth of listed stocks in Vietnam, with the only exceptions being sudden surges in off-the-board transactions for property developer Vinhomes and digital media firm Yeah1 Group. The selling continued in the first two weeks of August, reaching VND1.5 trillion ($66.4 million) in value.

Investment funds also saw the value of their Vietnam-based holdings heading south. In July, VinaCapital’s Vietnam Opportunity Fund decreased by 2.4 per cent in net asset value month-on-month, while Tundra Vietnam Fund dropped by 2.98 per cent and PYN Elite Fund declined by 3.7 per cent.

Although foreign investors only account for 20 per cent of all market transactions in Vietnam, what they do tends to be heavily monitored by local investors. In other words, a great number of Vietnamese investors regard foreigners’ activities as a sign of how the market will develop in the short term. As a result, the net selling of overseas investors for the past quarter has dampened the mood of local investors, fuelling further drops in the market gauge VN-Index.

Various explanations have been put forward. At the forefront is the escalating US-China trade war, which prompted net selling across various emerging and frontier markets. According to VinaCapital, Vietnam is not immune from this regional trend, although its performance is better than other peers’.

Most investors agreed that the 1.5-per-cent devaluation of the VND also affected the net asset value of investment funds, as they have to convert Vietnam-based earnings into dollars or euros. In its latest report, Tundra Fund Vietnam noted that the weakening of the Chinese yuan, a direct effect of the trade war, also sparked investor concerns about a flood of Chinese goods reaching Vietnam, harming domestic businesses.

Some market observers are worried that an ongoing outflow of foreign capital will negatively affect investors’ sentiment as well as the success rate of upcoming state divestments and initial sales of state-owned enterprise. For example, Viglacera already felt the hit, as 80 million state-owned shares, offered in a public auction last month, went unsold. The primary reason for this unsuccessful sale are bearish market conditions, although Viglacera has been a favoured stock of some foreign investors like Dragon Capital.

Rays of sunshine

Foreign investors say that although they are concerned about external volatilities, they believe in the long-term intrinsic appeal of the Vietnamese stock market, driven by Vietnam’s stable macro-economics, growing domestic consumption, and a long list of state divestments.

“Given July’s market correction, we think the market has already priced in a significant amount of risk and uncertainty with respect to where the trade war will lead, as well as its potential impact on companies’ earnings here in Vietnam,” said VinaCapital.

Many investors are happy about the business performance of their holdings in the first half of 2018. PYN Elite Fund, for example, noted that its top investment Mobile World Investment Corporation (MWG) reported a 44-per-cent increase in net profits year-on-year for the first half of 2018.

“MWG posted excellent results, which is in line with our expectations,” noted Mai Le, analyst at PYN Elite Fund. About 15.3 per cent of the $457-million fund is deployed in MWG.

Similarly, VinaCapital is elated that Hoa Phat Group–its largest holding–posted a net profit growth of 27.4 per cent year-on-year.

Tundra Fund noted earnings growth in various sectors, from banking to real estate and materials. It pinpointed Dat Xanh Real Estate Service and Construction Corporation, Saigon Securities Incorporation, and Ho Chi Minh Securities as the top performers.

FMG Funds Vietnam repeated that a period of correction is necessary to blow off some steam from the bubble in the Vietnamese stock market between 2017 and the first quarter of 2018. The fund expressed its certainty that value investors in Vietnam continued to be bullish about domestic stocks. “After the release of second quarter results from around 50 holdings (or 70 per cent of our stocks), we are very happy to see that 29 of them are trading at just short of eight times the expected earnings for 2018 and eight of them are trading just below five times the expected 2018 earnings,” the fund noted of the mismatch between low market quotes of its holdings and the good business performance.

Overall, Marc Djandji, head of Institutional Sales at Rong Viet Securities, said that analysts remain positive about Vietnam’s macro-economy despite the US-China trade war. Experts believe that recent headwinds in Vietnam’s stock market were mostly due to external factors, unrelated to what is happening inside Vietnam–including companies’ business performance.