Foreign capital return on the cards for Vietnam stock exchange

Foreign cash flow could return to Vietnam’s stock market in the near future, spurred by the removal of pre-funding requirement starting November 2 and the Fed’s 0.5-percentage-point rate cut, market observers say.

Foreign investors had a positive trading week (September 16-20), net buying stocks worth over VND1.2 trillion ($48.47 million).

They made net purchases for four consecutive sessions and only net sold again on Friday at over VND300 billion ($12.2 million).

The net purchases focused mainly on SSI of Saigon Securities, FPT of tech giant FPT, and VHM of real estate developer Vinhomes; while HPG of steel giant Hoa Phat and EVF of EVN Finance JSC were among the net sold stocks.

Notably, Friday marked the rebalancing of the FTSE Vietnam Swap UCITS ETF and the VanEck Vectors Vietnam ETF.

From the beginning of the year until the end of August, foreign investors net sold stocks worth VND64.7 trillion ($2.63 billion), exceeding the total figure for the entire year of 2021. However, their net selling slowed down to about VND3.6 trillion ($146.3 million) in August, a quarter of the amount in May and June.

One positive information influencing foreign investor trading is the Fed’s decision to lower interest rates by 0.5 percentage points to 4.75-5% per year. Fed officials have forecast a further reduction of 0.5 percentage points by the end of this year and 1 percentage point next year. By 2026, they plan another 0.5-percentage-point cut to bring interest rates down to 2.75-3%.

Tran Hoang Son, market strategy director at VPBank Securities (VPBankS), noted that after the Fed rate cut, capital flows tend to shift from overheated stock markets to those with better returns. Accordingly, foreign capital is expected to return to Vietnam by the end of this year or early next year as the country has many attractive factors including an impending market status upgrade and strong economic growth.

On Wednesday, the Ministry of Finance issued Circular 68, which will take effect from November 2, allowing foreign institutions to purchase Vietnamese stocks without having to show sufficient funds upfront.

In addition, the circular outlines a roadmap for disclosing information in English. Specifically, listed organizations and major public companies must disclose information periodically in English starting January 1, 2015.

“Extraordinary information, requested information and information about other activities” must be disclosed in English starting January 1, 2026. The corresponding timelines for other public organizations are January 1, 2027 and January 1, 2028 respectively.

With this circular, pre-funding and equal access to information for foreign investors (with information published in English), key obstacles to the process of upgrading Vietnam’s stock market status from “frontier” to “emerging”, have been removed.

Many analysts have highlighted the bright prospects for Vietnam achieving its market upgrade goal by 2025. SSI Research expects FTSE Russell to make the upgrade during the evaluation period in September 2025.

Maybank Investment Bank (MSVN) has said that FTSE may need six months or more to assess the new mechanism’s stability and consult their investors before upgrading Vietnam’s market status in September 2025 (base scenario) or even as early as March 2025 (best-case scenario).

The non pre-funding solution allows foreign investment funds to consider re-entering the Vietnamese market, especially as capital flows shift to emerging markets amid a cooling USD.

With a market status upgrade, analysts have estimated that inflows from exchange traded funds (ETFs) could reach up to $1.7 billion, not including capital from active funds, whose total assets are five times greater than those from ETFs as projected by FTSE Russell.

During the September 16-20 trading week, Vietnam’s stock market saw a recovery, with its benchmark VN-Index on the Ho Chi Minh Stock Exchange (HoSE) rising from 1,251 points to 1,274, registering four gaining sessions and one losing session.

The trading value on the HoSE, after hitting a low of VND10-11 trillion ($447 million) the previous week, has recovered. Notably, it reached VND21.8 trillion ($886 million) on Friday, the highest level in the past two months.