A strong correction was the major trend of the stock market last week, especially when investors’ decisions were affected by information about the continued dollar price escalations. The trend could be seen in foreign investors’ strong net sales which were the major influence on the stock market.

Dinh Quang Hinh from VNDirect Securities said investors paid special attention to the dong/dollar exchange rate.

“The pressure has increased in recent weeks and foreign investors’ net sales have calmed the market’s excitement,” he said.

The net sales of foreign investors last week reached VND2.147 trillion at the HCM City Stock Exchange (HOSE). The investment portfolio restructuring of the three largest ETF (Exchange Traded Fund) also occurred on the bourse.

HPG of Hoa Phat Group, STB of Sacombank, and SHB of Saigon-Hanoi Bank were the shares with the biggest volume for sale, VND709 billion, VND378 billion and VND212 billion, respectively. 

Other shares, including VIC, MWG, VCI and KBC, were also put up for sale, worth over VND100 billion.

Analysts point out that the cash flow from foreign investors has been in accordance with the exchange rate performance. Foreign investors have shifted to net sales since April, the time when the dong/dollar exchange rate began escalating.

From early April to September 15, VND13.16 trillion worth of foreign capital were withdrawn from HOSE. In the first half of September, when the exchange rate pressure was the highest, foreign investors’ net sales reached VND3.456 trillion.

Foreign investors’ net sales occurred after the effects of capital withdrawal by large ETFs, such as Fubon ETF, DCVFM VNDiamond ETF and DCVFM VN30 ETF

VN30 ETF. 

The excess of sales over purchases of the ETFs alone had reached VND3.3 trillion since the beginning of the year out of total net sales of VND7.2 trillion.

The capital net withdrawal of ETFs was made amid the exchange rate escalation recently. When the dollar appreciates, foreign investors lose their advantage in holding Vietnam’s stocks, because the investment items in dong turn into losses if converting into US dollars.

A report from SSI Research also showed that ETFs investing in Vietnam saw a net withdrawal of VND3.4 trillion last August, the biggest month-on-month figure. The strong withdrawal trend was affected by foreign investors’ risk management methods. In general, ETFs’ net withdrawals coincide with exchange rate fluctuations.

Investors told to remain calm

Though the exchange rate performance has had a significant impact on foreign cash flow to the stock market, most experts believe that the fluctuations are not too worrying.

The latest official dong/dollar exchange rate announced by the State Bank of Vietnam (SBV) was VND24,036 per dollar, a historical peak. Commercial banks quote dollar prices at VND24,000-24,440 per dollar (buy and sell), while the dollar was traded at VND24,180-24,260 per dollar on the free market.

Le Anh Tuan from Dragon Capital said the exchange rate differs between the authentic and black markets. If the difference is high, this means that domestic investors are speculating in VND. The recent dollar price increase is attributed to the difference between VND and dollar interest rates, as well as enterprises’ short-term demand.

“Since June, the exchange rate is no longer worrying as the exchange rate fluctuated mostly because of the big interest rate gap,” Tuan said. “When the US no longer tightens its monetary policy, Vietnam will have ample room for its monetary policy."

Nguyen Tu Anh from the Party Central Committee's Economic Commission also thinks that the current situation is not worrying.

SSI Research pointed out that the exchange rate performance recently was heavily influenced by seasonal factors and divergent monetary policies by the major central banks in the world, creating greater pressure on the exchange rate in the third quarter.

The good news is that SBV’s position now is different from the same period last year, thanks to increased forex reserves in the first six months, plentiful supply of foreign currencies from FDI disbursement ($13.1 billion), and a trade surplus of $19.9 billion.

VNDirect Securities also thinks that SBV has many tools to stabilize the exchange rate this year thanks to these factors.

Huy Le