ETF to face capital withdrawal pressure in short-term

A few days of early June has seen USD/VND exchange rate surging to the record high that has ruined the stability from the beginning of the year. Despite stock market’s recovery, this has posed significant concerns on stock investors as foreign investors have apparently been less enthusiastic about the listed market, particularly some even are considering capital withdrawal in short term.

FTSE Vietnam Index that was built in 2007 has long been considered the standard trading parameter for foreign financial institutions, which is periodically adjusted by FTSE. In their latest review in early June, three stocks including REE, PET and KDH have been removed from FTSE Vietnam Index series while the other five namely DHG, VCF, PGD, ASM and LCG have been newly added. Normally, such adjustment is subject to two major criteria which are purchasing volume of foreign investors and daily liquidity of stocks based on FTSE’s own calculation.

Besides ETF managed by Deutsche Bank, Market Vectors Vietnam ETF – VNM run by Van Eck is another well-known ETF. The recent announcement of investment portfolio on 5 June has revealed VNM’s negative operating cash of nearly USD 2 million. This fund could, thus, not only carry out periodical portfolio restructuring but also face up to shareholders’ potential capital withdrawal. EFT allows more flexible capital withdrawal than tradition funds, making such ETFs’ reaction an early indication for the market.

Currently, net selling of the foreign sector has continued since May bringing to mind the falling stock market in the end of 2011 due to prolonged net selling of several close-ended foreign funds being converted into open-ended.

In fact, the recent pick-up in the USD/VND exchange rate is put down to soaring demand from commercial banks when most of them have turned into hoarding foreign currencies for long term rather than short term, according to Ban Viet Securities Company. What is more, excessive import turnover climbing to USD 700 million in May has deepened worries of businesses’ surging demand for the green back till the year end, which could in turn put dong in substantial pressure.

Assumingly, much of the current net selling of EFT could stem from European economic turmoil, said Trinh Hoai Giang, deputy general director of HSX Securities Company. Obviously, capital flows would head for secured markets in the event of global economic instability, he added.

 

Category: Stocks