Hanoi (VNS/VNA) - From being net sellers in the firstnine months of 2022, foreign investors have become the driving force supportingthe Vietnamese stock market in the last few months, and the inflows areexpected to continue this year.

In 2022, this group net disbursed more than 29.2 trillion VND (1.2billion USD) to the market, while it has net sold nearly 18.8 trillion VND andset a record net selling value of over 62.2 trillion VND in 2021.

In November alone, more than 16 trillion VND in net disbursed cashflow from foreign investors was significantly supported by exchange-traded fund(ETF) capital inflows into the market, primarily from the Fubon ETF and theVNDiamond Index-based ETF.

A study by BIDV Securities Company (BSC) analysing over 50 billionUSD owned by foreign investors on the Vietnamese stock market showed that morethan half of foreign ownership is owned by strategic investors. This groupusually holds stocks for the long term.

The second group consists of investment funds, typically fromEurope, that invest the majority of their assets in Vietnamese securities.These investors are attached to the development of the market, and theinvestment depends on the amount of money raised from investors.

There are also a group of index funds, which account for more than10% of the number of shares held by foreign investors and operate quiteflexibly, and a group of investors who buy securities through P-notes(participatory notes).

The market's drop in October and the first half of Novemberprompted a cash inflow into the Vietnamese stock market. Positive cash flowspread across many ETFs.

The total net inflow of ETFs reached nearly VNĐ7 trillion inOctober, the highest value recorded since April 2021. For the first ten monthsof 2022, ETF capital flow reported a record value of over 18.8 trillion VND,far exceeding the value of 13.5 trillion VND for the whole year of 2021.

Besides accelerating capital disbursement in the stock market,some signals showed that cash flow will continue to flow into the stock market in2023.

In early December 2022, VanEck Vietnam ETF (VNM ETF) said that itagreed to change the benchmark index from MVIS Vietnam Index to Market VectorVietnam Local Index. Accordingly, the MVIS Vietnam Index will be deleted andtransferred to the Market Vector Vietnam Local Index.

With the change of the base index, VNM ETF is expected to increasethe proportion of Vietnam to 100%, equivalent to more than 100 million USDpouring into the domestic stock market. The expected effective date is March17.

Previously, the Fubon FTSE Vietnam ETF from Taiwan (China) wasalso licenced to raise additional capital for the fourth time, with a scale ofup to 5 billion TWD (nearly 4 trillion VND) at the end of November 2022.Thefund's fourth offering started on November 23, 2022.

The ETF aims to invest 100% in Vietnamese stocks and selectedpotential industries. The fund will disburse new investments into Vietnamesestocks from December 2022 to February 2023.

Factorsattracting foreign investors

In a letter to investors last month, PYN Elite said that themarket benchmark VN-Index hit the bottom in last November at 900 points and hasthe opportunity to grow positively in 2023.

"The confidence in the market improved. We expect theVN-Index to move in sync with Vietnamese economic growth and the expectedincrease in corporate profits in 2023. Among ASEAN countries, Vietnam has thestrongest prospects for economic and corporate profit growth," said PYNElite.

In fact, one of the driving forces pulling foreign cash flows backto the market recently was the attractive valuation of the market. The VN-Indexended 2022 at 1,007.09 points, equivalent to a decrease of 32.78% over thebeginning of the year and in the Top Five markets with the strongest declines.

According to the AFC Vietnam Fund, Vietnam is one of thefastest-growing economies in the world, with GDP in 2022 growing by 8.02% andexpected to gain 6% in 2023. Therefore, the recent decline in the stock markethas brought the market valuation down to an extremely attractive level, with aforward P/E of 2023 at 8.1, compared to 11.5x in the Philippines, 12.5x inMalaysia, and 14.8x in Thailand.

"In our view, this creates an excellent buying opportunityfor long-term investors. Another interesting thing is that, compared to theS&P 500, emerging markets are trading at a 34-year low. This makesinvestors consider whether all the bad news has already been reflected in theprice and whether there will be any such opportunity in the next tenyears," AFC Vietnam Fund said.

Foreign investors also expect Vietnam’s market to be upgraded toan emerging market. According to JPMorgan's CEO in the Asia-Pacific region, ifit is upgraded to emerging market status, the market will receive approximately5 billion USD from ETFs. Therefore, the fact that the market is in a period oflow valuation is a very good opportunity to invest and hold.

In addition to an attractive valuation, the Vietnamese marketbenefits from other macro factors in the global market. Specifically, aweakening dollar helps capital flows move into emerging markets, or thereopening of China at the beginning of 2023 will help cash flows flock intomarkets in Asia such as Vietnam, India, the Republic of Korea, and Taiwan(China)./.