ETFs return to market after October correction but not strong as expected
The net withdrawal value of ETFs narrowed down significantly after recorded the strongest monthly net withdrawal value of nearly $4.5 trillion in more than two years in August, indicating that ETFs are returning to the market after the strong correction in October.
The capital flow from exchange – traded funds (ETFs) is returning to the stock market after the market correction in October caused the VN-Index to tumble by nearly 11 per cent but the inflow is not as strong as expected.
Statistics of FiinTrade showed that foreign capital flows continued to be in net withdrawal of VNĐ2.6 trillion in October, bringing the total net withdraw value to nearly VNĐ11.2 trillion in the first 10 months of this year.
However, the net withdrawal value of ETFs narrowed down significantly after recording the strongest monthly net withdrawal value of nearly $4.5 trillion in more than two years in August, indicating that ETFs were returning to the market after the strong correction in October.
FiinTrade’ statistics showed that ETFs pumped a neat value of VNĐ1.3 trillion in October, mostly by Fubon FTSE Vietnam ETF with a VNĐ1.2 trillion inflow.
After recent corrections, the generation valuation of the Vietnamese stock market was at a lower level than two months ago, raising expectations that foreign cash would flow strongly into the stock market like what had happened at the end of 2022.
However, FiinTrade believes that this trend was unlikely to happen because the valuation level was still high and the macroeconomic improving were taking place slower than expected together with the trend of less positive inflow into ETFs in developing markets.
SSI Research in a recent report pointed out that the market correction in October reactivated the inflow of ETFs into Việt Nam’s stock market after strong net withdrawal values in the two previous months.
Fubon FTSE Vietnam ETF invested a net value of VNĐ1,264 trillion in October after four consecutive months of net withdrawals. Other funds also reported net inflows such as FTSE Vietnam (with a net buy of VNĐ134 billion), iShares Frontiers EM (VNĐ224 billion), DCVFM VNMidcap (VNĐ54 billion) and SSIAM VN30 (VNĐ20 billion).
Funds which reported net withdrawals included DCVFM VNDiamond with a net value of VNĐ683 billion, DCVFMVN30 (VNĐ247 billion), SSIAM VNFIN Lead (VNĐ192 billion). Those funds were mostly affected by Thailand’s tightened regulations on taxing income from abroad to be in effect from the beginning of next year.
The inflow by ETFs would be supported by the factor that stock markets of Taiwan and the Republic of Korea had limited room for growth as prices soared significantly, coupled with heavy dependence on technology stocks, according to SSI Research.
Seasonally, ETF inflows tended to be strengthened in the first and last quarter. Any market correction could trigger a cash flow for bottom fishing, SSI Research said, stressing the positive view on ETF capital inflow. However, the level of net inflow would not be significant as the macroeconomic variables had not seen clear improvements.
Regarding worry over net withdrawal trend of the foreign investors due to exchange rates, analysts said that the pressure was easing.
A report by ACB Securities said that the possibility that the Fed would further increase rates at the coming December meeting was no longer as high as previously forecast because the DXY Index had cooled down, making the net selling of foreign investors tend to decrease.
According to Michael Kokalari, VinaCapital’s chief economist, there had been concern that the State Bank of Việt Nam might significantly tighten monetary policy to stabilise the USD/VNĐ exchange rate, including the possibility of a rate hike, which was the most important factor causing the market to plunge.
Now, VinaCapital was optimistic when the exchange rate was stable in recent weeks without any rate hikes and the US dollar’s upward momentum seemed to have ended.
In addition, as Việt Nam’s industrial production index and others remained at low levels, VinaCapital believed that the central bank would keep interest rates unchanged in coming months. — VNS
