The USD index has experienced a significant drop of nearly 3.5% since its peak in early October, reaching its lowest level since the end of August.

Domestically, many banks are now offering USD at buying prices below the threshold of 24,000 VND/USD. This shift not only eases pressure on monetary policy but also creates an opportunity for a reversal in the flow of foreign capital into the Vietnamese stock market, which had been flowing out following the State Bank's reduction in VND interest rates.

Foreign Investors Maintain Net Selling Trend in the Market

Foreign investors, however, are still net sellers in the market. Despite the global depreciation of the USD and the decrease in the domestic USD/VND exchange rate, Vietnam's stock market has witnessed alternating net buying and net selling sessions by foreign investors. While these are positive signals after months of strong net selling and capital withdrawals from ETF funds in the Vietnamese stock market, they are still tentative.

Daily transaction statistics for foreign investors in November reveal a total net selling value of VND 3,413 billion on HoSE alone, surpassing October's VND 2,739 billion. This raises the question: Why are foreign investors still selling significantly despite the decline in the exchange rate?

The answer lies in a shift in foreign investors' investment behavior. They are no longer solely engaged in long-term buying and holding but also participate in short-term speculative buying and selling activities. Changes in daily trading activities do not necessarily correlate with capital withdrawal or new capital mobilization by investment funds.

For a more accurate picture, it's essential to examine the capital increase and decrease activities of the main ETF funds investing in Vietnam. Data indicates that after the State Bank initiated interest rate reductions, ETF funds began withdrawing capital on varying scales. Western capital flow funds, such as VanEck, FTSE, and iShare MSCI, particularly experienced significant capital withdrawals.

Since August, when the VND/USD exchange rate exceeded VND 24,000, numerous funds witnessed substantial capital withdrawals. For example, in August, ETF funds investing in the Vietnamese market saw a record monthly withdrawal of VND 4,500 billion, the highest in the last two years.

By September, foreign ETF funds reduced withdrawals to about VND 636 billion, while domestic ETF funds withdrew around VND 1,200 billion. In October, foreign ETFs experienced a net inflow of nearly VND 1,400 billion, signaling a positive shift. However, domestic ETFs continued to withdraw over VND 1,100 billion.

In the first four weeks of November, the trend remained positive, with foreign ETF funds showing a net inflow of +VND 440 billion. While some funds experienced significant withdrawals, others successfully attracted new capital.

In summary, although foreign capital flows have not yet turned consistently positive, the situation has improved compared to the period from August to October. Some funds still witness strong capital withdrawals, but others are successfully mobilizing new capital, indicating a changing landscape in the Vietnamese stock market.

Opportunities to Attract Capital Amidst Global Changes

The recent monetary tightening cycle of the US Federal Reserve (Fed) and the substantial appreciation of the USD from August to October have prompted a shift in global investment capital flows. SSI Research's October report, examining international sources, highlighted that US government bond yields reached their highest levels since 2007. This led to continuous monthly inflows of billions of dollars into bond funds over nine months, while capital flowed out of stock funds. Changes in inter-market macro factors, such as these, influence investment capital flows.

There is a strong likelihood that ETF capital inflows into Vietnam's stock market will be net inflows this November. This would serve as a consistent confirmation of the cooling exchange rates and an expectation of the market gradually recovering amidst an improving economic cycle. Indirect capital flows, particularly from ETFs, are often considered "hot" capital flows—capable of entering and exiting swiftly based on investment opportunities. Therefore, the ability to attract capital depends largely on the market outlook.

Historical trends demonstrate that foreign capital tends to enter robustly during declining market conditions, seizing opportunities for profitable investments. An example is the corporate bond crisis at the end of 2022, during which ETF funds became particularly attractive to investors, making capital mobilization easier. Even during the October adjustment, foreign ETF funds started attracting new capital flows.

In the recent past, Vietnam's economy faced challenges such as slow growth, unattractive business activities among listed companies, and exchange rate pressures. However, positive signals in October, along with the prospects for the fourth quarter and 2024, have opened up new growth opportunities. This coincides with the conclusion of the Fed's monetary tightening cycle, which could potentially reverse into an easing cycle. The market still holds opportunities to attract capital, and the evolving economic landscape suggests a favorable environment for potential growth.

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