Strong Foreign Cash Flows to Pour into Stock Market

Compared with the end of 2014, the stock market in the first seven months of 2015 experienced relatively strong growth of nearly 10 percent, the average exchange rate reached more than 130 million shares on HOSE and about 94 million shares on HNX, the average trading volume reached about VND2,300 billion/session.

 

Transactions still revolve around Blue chips, especially banking stocks. This is the sector which did not receive much expectation from investors at the early 2015 due to impacts from bad debt, slow credit growth and plan of emergent of banks prescribed by the Government. However, in recent time, this group has led the stock market.

The second remarkable point of the stock market during the first half of 2015 is the strong participation of foreign investors, which has increased the liquidity of the market with about VND5 trillion poured into both two stock trading floors. It is also the factor that keeps the Vietnam’s stock market stable in recent time.

 

With such positive changes, experts say, the market will have better developments, cash flow in the market will greatly benefit from domestic and foreign cash flow.

 

Accordingly, the government bond market is the one that draws much attention. During the period 2012- 2014 as the economy was still facing many difficulties, the government bond market operated very effectively with a success rate of 120 percent compared to the plan, the rate of successful bid for the first issuing time was 100 percent. However, in the first 6 months of 2015, as the economy developed more positively, the ratio of successful issuing of the government bond reached only 47 percent over the same period of 2014 which is equivalent to VND72 trillion, and reaching about one-third of yearly plan. That is base for experts to say that the cash flow will invest in other investment channels, including the stock market instead of government bonds.

 

As for the banking sector, after restructuring, the liquidity of the banking system was much better, interbank transactions also increased, in which a number of joint-stock commercial banks have started to increase deposit rates to mobilise capital flow. This shows that cash flow is withdrawing from the banking system and pouring into other targets including the stock market which is considered as an attractive investment channel.

 

In the first six months of 2015, GDP rose higher than the target set (6.1 percent); FDI flow also experienced a better growth over the same period. And to facilitate enterprises, in the future, the State Bank will likely reduce lending interest rate and at the same time, stabilise the deposit rate so that business will operate more efficiently during the last six months of the year.

 

Regarding the foreign cash flow, according to representatives of JSC Petroleum securities, the crisis of the Greek economy will lead to the fact that a large amount of money pulled out of the euro. Meanwhile, the USD is reclaiming its value, this is the reason the cash flows from Europe was being poured in some emerging markets and bonds.

 

Mr Dao Hong Duong, Investment Advisory Department, PetroVietnam Securities Incorporated (PSI) said that during the last 6 months, especially at the end of the third quarter and the fourth quarter, Vietnam may be an ideal investment destination for cash flows from Europe. In the past, in these periods, cash flows from foreign investors will have a huge impact on the domestic stock market due to small scale of Vietnam’s stock market.

 

Moving on to policy matters, the Government, in recent times, also made great efforts to create a more open market in order to attract foreign direct investment such as stabilising exchange rates, issuing Decree 60/2015/ND-CP, effective from the beginning of 2015 and Circular to replace Circular 74 / 2011/ TT-BTC to greatly support for foreign investors. These positive changes to shorten the transaction time, convenient payment and reduce risks for investors and loose the rate of ownership (room) for foreign investors has had a positive influence on investors as well as stimulated the foreign capital flowing into the stock market. Along with that, many free trade agreements were signed and started its implementation roadmap, attracting foreign capital flows into Vietnam.

 

Compared with other countries in the region, Vietnam's stock market is still an ideal choice for foreign investors because stock market valuations are relatively low with P / E level of 30 to 40 percent lower than many countries in the region. With such a low index, Vietnam stock market still has potential for growth with active cash flows.