Foreign investors at the Hồ Chí Minh Stock Exchange (HoSE). Capital flows in the market are moving in opposite directions. Photo hsx.com.vn

HÀ NỘI - While individual investors' cash flow is supporting the market, foreign investors are strongly net selling multi-trillions of đồng.

The good news of the interest rate reduction has not yet been able to help the stock market. The VN-Index mainly accumulated within a narrow range of 1,060 – 1,070 points with a divergence between industry groups. The remarkable point is the strong net selling momentum of foreign investors recently. In the last week alone, foreign investors strongly sold nearly VNĐ2.4 trillion (US$102 million).

In the Securities Spotlight online forum organised by MBS Securities, economist Hoàng Công Tuấn said that capital flows in the market were moving in opposite directions. While individual investors' cash flow was becoming a support for the market, foreign investors were strongly net selling.

Discussing the reason for foreign investors' net withdrawal, Tuấn gave two main reasons.

Firstly, despite the positive assessment of the prospect of Việt Nam's stock market in the long term, foreign investors also see it unlikely that the VN-Index will gain strongly this year. Therefore, after buying a large value of stocks at the end of last year and at the beginning of this year, it is understandable for foreign investors to take a profit.

Second, the net selling of foreign investors is also affected by Việt Nam's policies and mechanisms. After three rounds of lowering interest rates, Việt Nam's operating interest rates have returned to pre-COVID-19 levels. Therefore, the room for further easing of monetary policy in the short term is quite narrow and this affects the outlook of the stock market in the short term.

Internationally, although inflation in the US has declined, labour market growth is still at a slow rate. Therefore, the US Fed may raise interest rates one more time in July, although this probability is not high. In that case, it is very unlikely that Việt Nam's interest rates will continue to lower further.

Net selling trend to continue?

Assessing the impact of foreign net selling momentum, Tuấn said that this depended on the market context. In 2009, 2011, and 2012 foreign capital inflows played a leading role in the market trend. Every time foreign investors net sold, the market plummeted. However, in recent years, foreign capital inflows no longer have too much impact on the index. Especially in the period of 2020 - 2021, despite the continuous net withdrawal of foreign capital, the stock market continued to go up.

But this year, foreign capital inflows seem to continue to influence the index. From the end of last year to the beginning of this year, foreign investors net bought strongly and helped the index recover from the bottom of 900 points. However after that, foreign investors were net sellers, creating certain correcting pressures for the general market.

Tuấn said that, at present, the selling force of foreign investors had returned to play a leading role in market orientation.

“Many people will wonder why foreign investors account for only 12-15 per cent of total market transactions but have an impact on the index? Simply because foreign investors mainly invest in blue chips, when they net sell at these stock codes, it will indirectly affect the general index,” he said.

“At the moment, I predict that foreign investors are still quite cautious. They are likely to continue the trend of taking profits as they bought in at a relatively low valuation at the end of last year and early this year,” said Tuấn.

Looking at it from a different angle, Bùi Văn Huy, Branch Director of DSC Securities, said that the main net selling momentum of foreign investors came from the rapid recovery of the dollar in recent weeks, in the face of uncertainties about the financial situation in US public debt.

"Experts believe that the dollar will cool down in the short term and bond yield will decrease again. At that time, the net selling pressure of foreign investors will be somewhat reduced, because the US was also one of the sources of net selling in Việt Nam last week," he said.