During the last three weeks, capital inflow from foreign investors lent strong support to the stock market. At HoSE, the average daily buying accounted for about 16.3 percent of total transactions, and on some special days even accounted for 36 percent. Many investors were seen contemplating the possibility of new capital pushing the stock market up.

Illustrative photo

Strong net buying

The strong net buying of foreign investors in the last three weeks was quite impressive. Statistics at HoSE, from 6 March to 22 March 2023, show the total net buying scale reached VND 3,028 bln, of which the net buying of stocks was VND 3,289 bln. If from the beginning of January until now the net buying of stocks was VND 4,863 bln, then nearly 68 percent of net capital has been concentrated in the last three weeks.

This concentrated net buying has a special feature that the VNM fund changed the reference index from MVIS Vietnam Index with 80 percent Vietnamese stock to MVIS Vietnam Local Index with 100 percent Vietnamese stock from 17 March 2023. In other words, this fund must disburse the remaining 20 percent of capital into Vietnam, equivalent to about VND 2,300 bln. In addition, the FTSE fund also made a net purchase. Like the Fubon ETF from 15 March 2023, it is also allowed to mobilize another VND 3,800 bln to invest in the Vietnamese market. Preliminary from this time to 22 March 2023, the fund has mobilized more than VND 680 bln and is also buying.

At first glance, the total number of newly disbursed capital into Vietnam's stock market is quite large, but in reality, the status is not as expected. As just pointed out, this strong buying has pushed the overall market share of foreign investors on the HoSE to an average of over 16 percent of daily liquidity, but the bullish effect has not been evident for many reasons.

First, the concentrated buying phase of VNM ETF is momentary and has ended. This source of capital does not change daily supply and demand in the long term. In fact, the volatility of the VN Index before and at the end of trading of restructured foreign ETFs is only about 20 points apart. Right after these funds stopped buying, VN Index dropped 22 points in the session on 20 March. Simply put, the situation has not changed.

Second, the Fubon ETF fund has indeed raised capital and is buying daily, but instead of disbursing a large amount in a short time, this fund buys about VND 130 bln to VND 150 bln every day. This purchase size is too small compared to liquidity and it is more difficult to make the difference between supply and demand to the extent that it can push the market up as expected.

Third, in response to purchases of foreign funds, other foreign investors still sold out on a large scale. Statistics last week were net buying sessions, and the net buying value only accounted for about 10 percent of the total disbursement value. The data also shows that even during the restructuring period, funds such as VNM, FTSE, and MSCI did not have any new capital, but were withdrawn, although to a relatively small extent. ETFs with Thai capital such as Diamond ETF and VFMVN30 were also withdrawn. Because it is still being sold by other foreign organizations, the gap between supply and demand is even harder to tilt to one side.

Internal capital

It is always a good thing that foreign investment funds allocate more capital to Vietnam's stock market. On the one hand, it shows the general attractiveness of the market and on the other hand contributes to the absorption of a certain number of stocks. However, it is impossible to rely on this capital flow to create waves.

The strategy of the Fubon fund this time was quite a surprise because in the past there were times when this fund bought as soon as it had money, such as the period in October 2022, the first two weeks of November 2022, and the first week of December 2022 (see chart). With the current method of buying only VND 130 bln to VND 150 bln per day, the amount of capital raised of VND 3,800 bln will be disbursed for a whole month in about 25 trading sessions.

It's not a remarkable incentive. In fact, the capital flow of foreign investors from 2020 to now is no longer leading the market, like the capital flow of domestic investors. In terms of daily transaction size, foreign investors have not changed much. However, the total market liquidity decreased significantly. The reason can only be that the capital flow of domestic investors is weak. This contributed to increasing the proportion of foreign investor transactions.

So, we need to see where this capital went. Many investors think that if they do not withdraw money from securities, the amount of capital poured in is still somewhere. Actually, this is not the case. A large part of the buying power to create high liquidity during the bull market is the source of margin loans from securities companies. This amount of capital is not used much at this time, and the daily transaction cash flow decreases. Also, a part of the enterprise capital is enlisted to put into securities that have been withdrawn to serve production and business, debt repayment, or any other work.

Besides this, a large amount of individual investor money has been converted into shares through huge issuances, which means that investment capital is converted into equity and is no longer in the market. Finally, emerging investment channels such as gold, virtual currency, and even savings have attracted a large amount of working capital away from securities. Investment channels are interconnected, so when the stock market really ends the long-term downtrend and the macro changes clearly, the market enters a new bull cycle and the cash flow will return strongly.