HA NOI (VNS)— The recent decision of the US Federal Reserve (Fed) to hike key interest rates could see foreign investment flowing out of the Vietnamese stock market in the future, stock analysts forecast.
On Wednesday, Fed put an end to the market uncertainty with the announcement raising the federal fund rate by 0.25 per cent, the first increase in the benchmark in nearly a decade.
The world stock markets, ranging from the US to Europe and Asia, responded positively to this news. Viet Nam's benchmark VN-Index on the HCM Stock Exchange also increased 0.8 per cent on Thursday.
However, foreign investors kept selling out. Analysts expect this trend to continue in the near future and this may have a negative influence on the domestic securities market.
The VN-Index has lost over 6 per cent in the past 30 days due to uncertainties over the Fed's decision and prolonged net selling streak by foreign investors.
"Foreign net selling is one of the main reasons which has pushed the market down," Lai Duc Long, an analyst from Phu Hung Securities Company said.
Foreign investors have been net sellers on the HCM Stock Exchange since November with a total outflow of VND2.53 trillion (US$112.4 million).
According to Andy Ho, managing director and chief investment officer at VinaCapital, foreign investors have increased selling out in the past two weeks over the concerns that they would suffer losses in stock assets if Viet Nam's central bank adjusted the foreign exchange rate.
"If the Vietnamese dong was devalued further, foreign investors would compare investment returns in Viet Nam with the currency depreciation," Ho was quoted as saying on the financial website bizlive.vn.
However, Ho forecast that no adjustment in the foreign exchange rate would be made by the State Bank of Viet Nam after the Fed's decision and the VND/US$ rate would depend more heavily on the dollar supply from banks and movements of the Chinese yuan, Viet Nam's main export competitor.
In reality, foreign investors have divested investments from emerging markets in the past month in preparation for the Fed's rate hike, following the principle that smart money flows in places promising higher returns.
According to Bui Nguyen Khoa, a stock analyst at BIDV Securities Co, foreign investors used to buy strongly in the first quarter of each year following the portfolio restructuring of exchange-traded funds but the Fed's interest rate hike could slow down this activity. — VNS