On the morning of October 8, China's stock market exploded after the country’s National Day holiday (October 1-7). The CSI 300 index surged more than 10% at the market’s opening, following an already impressive rally.

Positive data on home sales and consumer spending provided fresh momentum for the stock market's upward trend. This investment channel has experienced a series of soaring sessions following Beijing's unprecedented economic stimulus package.

In total, Chinese stock markets have risen by around 30% in a very short period. This is the most significant increase since 2015. Previously, China’s stock market had lost over 45% of its value from its 2021 peak to mid-September 2024.

In contrast, U.S. stock markets saw a sharp decline on October 7 (the morning of October 8, Vietnam time), with the Dow Jones Industrial Average dropping nearly 400 points.

China’s stock market began its reversal in late September when Beijing announced a series of support measures, including interest rate cuts, reduced reserve requirements for banks, and liquidity support for stocks. Local governments in several first-tier cities also introduced initiatives to revive the real estate market.

These monetary and fiscal policy moves immediately caught the attention of Wall Street ‘sharks.’ Major firms like Goldman Sachs, HSBC, and BlackRock have all upgraded their outlooks for what was once a severely undervalued market.

China will hold a press conference on the morning of October 9 to provide more details about its policy package aimed at boosting economic growth. This is seen as a crucial factor for sustaining the stock market’s upward momentum.

Large funds such as BlackRock, Man Group, and Appaloosa Management have quickly entered the Chinese stock market. A representative from Appaloosa Management even stated on CNBC that they are "buying everything related to China."

The sharp rise in China’s stock market is impressive, and the rally is expected to continue as stocks had been deeply discounted compared to developed markets. Enthusiasm is evident, with trading volumes on the Shanghai and Shenzhen exchanges surging.

However, many institutions believe the rally may be short-lived. BlackRock has stated that it is ready to pivot cautiously in the long term due to "China's structural challenges."

There are also concerns about trade and geopolitics. U.S.-China tensions and various regional geopolitical issues remain dark clouds that could turn into headwinds at any moment. Some experts continue to avoid Chinese stocks, no matter how attractive the new economic policies may seem.

Moreover, there are fears that China's stock market could repeat the “lost decade” scenario that Japan experienced in the 1990s. Japan’s stock market took two decades to recover and achieve sustained growth after its economic bubble burst 30 years ago. The risk for China could be even greater due to its strained relations with the West.

Where will global capital flow?

There are signs that capital is flowing into China's stock market while being pulled out of the U.S. In Vietnam, foreign investors have stopped their net selling (which amounted to several billion USD earlier this year), and recently, there have been numerous net buying sessions worth hundreds of billions of VND.

Foreign investment fund flows are now highly volatile and are no longer predominantly held for the medium to long term as they once were. The recent surge in China’s stock market and the swift involvement of Western funds over the past few weeks reflect this trend.

According to many experts, whether China's stock market continues its rapid rise depends on the country’s upcoming economic support measures. However, once the Chinese market weakens, capital flows could shift, and a portion may enter Vietnam, though the scale will likely be small.

In September, foreign investors made significant net purchases, excluding a nearly VND 2.7 trillion divestment at VIB.

In reality, Vietnam’s stock market is still classified as a frontier market and lacks strong appeal. The challenges faced by major businesses, coupled with the economic impact of Typhoon Yagi and other fluctuations, continue to make foreign investors cautious.

According to Mirae Asset Securities, factors influencing Vietnam’s stock market in October include: Q3 business results with high growth expectations due to the low base of last year; the prospect of stock market upgrades and FTSE reviews (likely in September 2025); and the approval of several laws during the 8th National Assembly session beginning on October 21, such as the Public Investment Law and amendments to the Value Added Tax Law.

Positive FDI inflows, the government’s push for public investment, a large amount of capital expected to be injected through bank lending to meet the 15% credit growth target, and the trend of lower lending rates could also positively impact the stock market.

However, for now, capital inflows into the stock market remain modest. Liquidity has decreased in recent sessions. On the morning of October 8, the VN-Index fell slightly, losing 0.57 points to 1,269.36, with liquidity reaching just under VND 7.5 trillion on HoSE. The 1,300-point level remains a difficult threshold to surpass.

Globally, capital flows are not yet showing a clear trend, as both gold and U.S. stocks are near record highs, and government bonds are losing appeal as interest rates fall. Capital inflows into China’s stock market are only partial and are predicted to be short-lived. Recently, money has been moving into the U.S. dollar as a safe haven, causing the currency to appreciate.

There is also a possibility that capital will flow back into U.S. stocks as policy rates decrease and the U.S. economy is expected to avoid a recession, with a soft-landing scenario instead.

For Vietnam, the economy continues to attract consistent FDI inflows. Indirect investment (FII) is expected to increase again in 2025 when the stock market is upgraded.

Manh Ha