HANOI: The capital flow from exchange-traded funds (ETFs) is returning to the stock market after a market correction in October caused the VN-Index to tumble by nearly 11%t.

       However, the inflow has not been as strong as expected.

       Statistics from analytics platform FiinTrade showed that foreign capital flows continued to be in net withdrawal of 2.6 trillion dong in October, bringing the total net withdrawals to nearly 11.2 trillion dong in the first 10 months of this year.

       However, the net withdrawal value of ETFs narrowed significantly after recording the strongest monthly net withdrawals of nearly US$4.5 trillion in more than two years in August, indicating that ETFs were returning to the market after the strong correction in October.

       FiinTrade statistics showed that ETFs pumped in 1.3 trillion dong in October, mostly by Fubon FTSE Vietnam ETF with 1.2 trillion dong.

       After recent corrections, the valuation of the Vietnamese stock market had been at a lower level than two months ago, raising expectations that foreign cash would flow strongly into the stock market similar to what happened at the end of 2022.

       However, FiinTrade believes that this trend is unlikely to happen because valuations are still relatively high and macroeconomic improvements are taking place slower than expected together with the trend of less positive inflows into ETFs in developing markets.

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       SSI Research in a recent report pointed out that the market correction in October reactivated the inflow of ETFs into Vietnam’s stock market after strong net withdrawals in the two previous months.

       Fubon FTSE Vietnam ETF invested a net value of 1,264 trillion dong in October after four consecutive months of net withdrawals. Other funds also reported net inflows such as FTSE Vietnam (with a net buy of 134 billion dong), iShares Frontiers EM (224 billion dong) and DCVFM VNMidcap (54 billion dong).

       Funds which reported net withdrawals included DCVFM VNDiamond with a net value of 683 billion dong, DCVFMVN30 (247 billion dong), SSIAM VNFIN Lead (192 billion dong). Those funds were mostly affected by Thailand’s tightened regulations on taxing income from abroad due to come into effect from the beginning of next year.

       The inflow from ETFs is being supported by stock markets of Taiwan and South Korea having limited room for growth as prices soared significantly, coupled with heavy dependence on technology stocks, according to SSI Research.

       Seasonally, ETF inflows tend to strengthen in the first and last quarter. Any market correction could trigger a cash inflows for bottom fishing, SSI Research said, stressing the positive view of ETF inflows.

       Regarding worry over the trend of net withdrawals by foreign investors due to exchange rate fluctuations, analysts said that the pressure was easing.

       A report by ACB Securities said that the possibility that the US Federal Reserve would increase rates at its December meeting is no longer as high as previously forecast because the US dollar index had cooled, making the net selling of foreign investors to decrease.

       According to Michael Kokalari, VinaCapital’s chief economist, there had been concern that the State Bank of Vietnam might significantly tighten monetary policy to stabilise the US dollar/dong exchange rate, including the possibility of a rate hike, which was the most important factor causing the market to plunge. — Viet Nam News/ANN