Foreign Funds Navigate Volatility in Stock Market

Amid an unfavorable market, some actively managed funds and ETFs reported flat performances, with many even suffering losses.

VN-Index positively started 2024, adding 13.6% in the first quarter. The Vietnamese National Assembly's passage of the Land Law and the Law on Credit Institutions and the first quarter year-on-year profit growth of listed companies of 11.3% brought VN-Index closer to the 1,300-point threshold.

However, in the second quarter, the market became more difficult as investors began to wait for information on business results. In June, VN-Index dropped 16.4 points, or 1.3%, from May to 1,245.32 points, with a nearly flat liquidity.

Foreign funds report losses

Vietnam Holding said its performance was flat on weak domestic investor sentiment. However, according to the fund, the Vietnamese stock market still has a more attractive valuation than other markets in the region.

Investor enthusiasm for the technology sector continued after a NVIDIA delegation visited Vietnam and announced its cooperation agreements with local companies such as FPT, the top holding of the fund. FPT outperformed expectations as investors willingly paid a higher price for Vietnam's rapidly growing information technology industry.

Lumen Vietnam Fund (LVF) ended June 2024 with a negative performance, down 0.49% from the previous month, bringing the cumulative growth from the beginning of the year to 7.0%, which was still lower than VNAS's growth of 8.1% in the year to date.

ETFs also reported negative performances. Fubon FTSE reported a loss of 1.88%; VanEck Vectors, down 3.43%; Xtrackers FTSE, down 2.73%; and Premia MSCI Vietnam ETF, down 2.60%.

On the contrary, PYN Elite from Finland outperformed the VN-Index when it made a growth of 1.8%. Some other ETFs also advanced but not significantly, including DCVFMVN Diamond ETF, down 2.36%; DCVFM VN30 ETF, down 1.04%; and KIM Growth VN30 ETF, down 1.07%.

Looking ahead, Pyn Elite Fund saw better earnings from listed companies this year and little-changed interest rates. By year-end, it is likely that the US dollar will start to weaken, causing the Vietnamese dong to appreciate and produce a positive impact on stock market sentiment.

The “strong factors” of the stock market will also include the introduction of the new KRX trading system and the removal of the prepayment rules. The VN-Index target anticipated by Vietnamese securities companies was lower than fund's forecasts, at 1,400-1,500 points versus 1,700 points by the year-end.

Confidence in the Vietnamese government's renewed easing of fiscal and monetary policies

Lumen Vietnam Fund also pointed out some key factors shaping the market growth in the last months of this year, including the likelihood of reduced selling pressure from foreign investors, a significant positive factor for the market. As the US Federal Reserve (Fed) may cut its policy interest rates, emerging markets, including Vietnam, are expected to attract new interest from foreign investors.

Vietnam's much-expected upgrade to an emerging market by FTSE in September 2025 is likely to further boost foreign investment flows as regulatory changes like the removal of prepayment requirements are expected to expand market access.

Vietnam's economic recovery outlook is expected to accelerate, with GDP growth forecast for 2024 revised up to 6.4% from the previous forecast of 6%. This growth is driven by strong growth in consumption, manufacturing, exports and foreign direct investment (FDI), providing a solid foundation for continued economic growth.

Similarly, Vietnam Holding attributed Vietnam's GDP growth of 6.4% in the first half of the year to steady industrial manufacturing, effective inflation control measures and continued FDI increase.

FDI disbursement in Vietnam continued to grow strongly in June to bring the H1 value to US$10.8 billion, up 8.2% year-on-year, the highest H1 growth since 2012. Furthermore, disbursed FDI is expected to grow by 10% annually in the 2024-2026 period thanks to big investment registrations in 2023.

Vietnam remains in an increasingly attractive location, with a skilled workforce and a growing middle class, as multinational corporations continue to diversify their supply chains out of China. The recent upgrades of diplomatic relations between Vietnam and the US, Japan and Australia are also strengthening Vietnam's role in global trade.

Vietnam continued to record healthy retail sales in June, up 9.1% from May. Public investment, which grew by 4.8% in the first half of 2024, also played a key role in the country's growth landscape. According to the Ministry of Finance, in the first five months of 2024, the country's budget surplus hit US$9.5 billion, thus enabling the government to do more to foster economic recovery.

"We expect credit growth at 13-15% in 2024 and the Government will continue to ease monetary and fiscal policies in the second half of the year," Vietnam Holding noted.

By Binh Minh, Vietnam Business Forum