ETFs await good market signals

15:21 | 02/05/2015 Economy

(VEN) - Adverse changes seen on the market since late 2014 has led to the falling value of exchange traded funds (ETF).

ETFs await  good market signals

Changes in the world economy and the macroeconomic situation will have a positive impact on foreign capital flows into the Vietnamese securities market

The fact that investors recently withdrew capital from the Vietnam ETF (VNM) did have a knock-on effect on the Index. In the trading session on March 24, VNM withdrew an additional 850,000 outstanding shares, taking the total number of outstanding shares withdrawn by VNM in recent trading sessions to 1.85 million – almost equal to the number of outstanding shares that VNM issued in February. 

From February 28 to March 27, the total net asset value of VNM fell US$96 million (equivalent to more than VND2 trillion), from US$519 million to US$423 million, with the number of outstanding shares fell from 27 million to 24.8 million during the same period. With investors withdrawing capital, ETFs had to sell part of their equity portfolio in the Vietnamese securities market to return the money to investors. This explained why foreign investors constantly sold shares in recent weeks.

However, the two ETFs in Vietnam have a total net asset value of less than US$1 billion, accounting for almost four percent of the Vietnamese securities market’s capitalized value. Meanwhile, the Vietnamese securities market has a total capitalized value of about US$50 billion. Thus, although the fact that the two ETFs sold outstanding shares somewhat affected the Index and investor psychology, it didn’t totally reflect the nature of capital flows by foreign investors.

Overall, ETFs will have to rely on the growth of the Vietnamese market and a higher growth of Vietnam’s economy. Foreign investors who want to invest in Vietnam are most interested in leading shares and the shares in the VN30 group, and the VFMVN30 list of outstanding shares is more suited to meeting this demand.

However, ETFs bring investors certain benefits. VFMVN30 implements a passive investing strategy to carry out its pre-set investment objectives.  When the basket of component securities of the VN30 Index changes, the VFMVN30 will adjust the fund’s portfolio to align it with the basket of VN30 stocks. VFMVN30 replicates VN30, while SSIHNX30 replicates the HNX30 Index. This passive investing is aimed at reducing costs and providing a simple, straightforward play on whatever the indexes do.

 These indexes consist of 30 largest shares on each of the two stock exchanges, which account for 80 percent of the Vietnamese securities’ capitalized value.

 Foreign investors can invest in shares that have no more room through EFTs so they can access blue-chip shares through domestic ETFs without fear of violating the existing regulations.

Positive aspects such as low interest rates and potential opportunities to be provided by the Trans- Pacific Partnership (TPP) agreement are expected to promote foreign capital inflows into the Vietnamese securities market.       

By Thanh Thanh