Foreign capital flow into VN depends on FED moves

  • ngày 2018/06/19
The US Federal Reserve plans to raise the prime interest rate of the dollar once more, while the 10-year term US government bond interest rate has exceeded the 3 percent per annum threshold.

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Investors` behavior in the stock market is  changing

On May 23, the investment funds managed by Dragon Capital sold 5.5 million Vinamilk shares, worth VND902 billion to Jardine Matheson. Finally, after many years of holding and buying Vinamilk shares, Dragon Capital has stepped one foot out of Vietnam’s largest dairy producer.

The possibility of Dragon Capital buying back Vinamilk shares remains open.  But this shows that investors’ behavior in the stock market is changing.  In the last week of May, when the VN Index fell sharply, foreign investors’ net sales reached VND2.4 trillion, the highest within one week that the HCMC bourse (HOSE) had seen.

The US Federal Reserve plans to raise the prime interest rate of the dollar once more, while the 10-year term US government bond interest rate has exceeded the 3 percent per annum threshold.

Meanwhile, after 20 trading sessions in May, on HOSE alone, the foreign investors’ net sales were VND4.78 trillion. The sales by foreign investors did not depend on the equity price, but on liquidity.

They sold big amounts in the trading sessions with high liquidity, and vice versa. The VN Index could not resist the impact of the world stock market which, after 2017, began a downturn. 

The same thing is occurring with Vietnam’s market. However, as a frontier market, the VN Index was also influenced by capital withdrawal from frontier and emerging markets.  The market benefited for many years when the FED kept the US dollar at a record low in history.

However, as the interest rate has begun rising, the positions of risky assets in investment portfolios such as equities have changed.  Being net sellers in the stock market, foreign investors have poured billions of dollars into equities of private companies such as Vinhomes, Techcombank, HDBank, VP Bank, Vietjet Air and the IPOs of state-owned enterprises such as Binh Son Oil Refinery.

Analysts commented that foreign investors mostly injected money into large corporations operating in fields which have growth rates higher than the average growth rate of the national economy, such as real estate and banking. Though some experts have voiced their concern about the ‘overheating’ of the market, real estate is still a promising sector. As for the banking sector, the growth is foreseeable. 

A report of the government presented at the ongoing National Assembly’s session said Vietnam’s total GDP in 2017 was VND5,000 trillion, or $220 billion.  The total outstanding loans of the entire banking system, according to the State Bank, is now at VND6,500 trillion, i.e. 1.3 dong is needed for 1 dong of GDP.

Mai Chi

Source: VietNamNet

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