ETF cash flow to Vietnamese stock market hits one-year high

Capital flow from exchange-traded funds (ETFs) was strong in May, reaching the highest monthly net injection of VND4,900 billion ($211.3 million) since April 2021, according to top broker SSI Securities.

An exchange-traded fund (ETF) is a type of pooled investment security that works similarly to a mutual fund. It will track a particular index, sector, commodity, or other assets. ETFs can be traded on a stock exchange like a regular stock.

In Vietnam, there are many ETFs that track index baskets, like VFMVN30 ETF, which replicates the VN30 performance. Others like VFMVN Diamond, SSIAM VNFinLead, SSIAM VNX50, and VinaCapital VN100 replicate the Diamond, VNFinLead, VNX50, and VN100-indexes, respectively.

These funds are managed by prestigious organizations like Dragon Capital, VinaCapital, SSI, and Mirae Asset.

Total ETF net inflow in the first five months of 2022 was VND6,700 billion ($289 million), the second-highest over the same period in past years, trailing only the 2021 figure of VND13,100 billion ($565 million).

The purchasing force focused on Taiwan-backed Fubon FTSE Vietnam and Dragon Capital’s VNDiamond DCVFM, with VND3,010 billion ($129.8 million) and VND1,861 billion ($80.3 million) respectively, according to the SSI report.

Domestic ETFs like VFM VN30 and SSIAM VNFINLead also recorded net inflows of VND72 billion ($3.1 million) and VND97 billion ($4.18 million), respectively. Other foreign ETFs, like FTSE Vietnam, began to revert to net purchasing in the second half of May.

Open-end funds also experienced a net purchase of VND272 billion ($11.7 million) in May, following three consecutive months of net withdrawal. Therefore, they remained net sellers to the tone of VND1 trillion ($43.1 million) in the first five months of the year, the report added.

Foreign investors recorded net buying of VND3,489 billion ($150.5 million) in May, and $43.1 million over the five-month period, focusing on banking, real estate, and retail. They have been net sellers since the beginning of 2020, with no substantial breakthrough, according to SSI.

Foreign investors made up 7% of the total transaction value on the Vietnamese stock market in the first five months of 2022, up from 5-6% in 2021, but still far less than the 15% pre-pandemic.

Vietnam's securities market has entered a strong correction, offering appealing stock valuations in terms of long-term investments that attract foreign investor cash flow, SSI analysts noted.

The market's top capital inflows in the foreign sector mostly came from ETFs, deriving from individual investors in Taiwan and Thailand. Experts noted that cash flow can soon reverse if the market does not improve in the near future.

SSI indicated that VN-Index’s performance grew less positive compared to Thailand’s SET-Index, as well as closed the gap with Taiwan’s TWSE-Index since the beginning of May.

The broker reported a slowdown in capital inflows into emerging markets over the past two months, owing to pressure from the Federal Reserve's rate hikes and higher U.S. Dollar Index.

The introduction of the new DCVFMVNMIDCAP fund focusing on medium-cap stocks is a favorable sign for capital inflows in the next month. It has undergone an initial public offering, the report stated.

SSI Securities recorded a net injection of $8.4 billion in global capital flows in May 2022, from a decline of $22.4 billion in April.

Notably, capital inflow into the developed market reversed to a net injection of $13.4 billion as a result of the U.S. market's attraction of $26.7 billion.

Cash flow into emerging markets saw a net outflow of $5.6 billion, mostly due to the net withdrawal of $2.5 billion from the Chinese market due to concerns about China's zero-Covid policy. Capital flows into other Asian markets were divided, with Korea and Taiwan recording net purchases in May, while India, Malaysia, Indonesia and Thailand posted net withdrawals.

According to Don Lam, CEO and co-founder of VinaCapital, the Vietnamese stock market has an enticing price-to-earnings ratio of 13 in 2022 and likely 10 in 2023, much lower than numerous Southeast Asian counterparts.