Increase in capital allocation
From the beginning of December 2020, Kuwait began to upgrade the process in MSCI, which will last until November 2021. Vietnam's stock market has also increased proportion in this market group, and the inflow of foreign investment is expected to increase in the Vietnamese share market.
The international investment fund groups that invest in MSCI can be divided into two main groups. The first group are the exchange traded funds (ETFs) which closely follow the index such as iShares MSCI Frontier 100 ETF. The second group are the investment funds that follow the MSCI Frontier Markets Index, with prominent names such as Schroder ISF Frontier Markets Fund, and Coeli Frontier Markets Fund. ETFs do not need to exactly allocate capital by proportion of market. Their capital flow is pretty large, and according to data from the above investment funds, the process of increasing the proportion of capital allocation for Vietnam's stock market has already begun.
The iShares MSCI Frontier 100 ETF, managed by BlackRock with total assets of USD 411.5 mn as of 16 December, increased the proportion of capital allocation in Vietnam's stock market to 14.45%, from 12.11% in early October. The three biggest investments of this fund in Vietnam’s stock market are VNM, VIC and HPG. These shares were increased when bought; VNM was increased 2.35%, equivalent to 2.03 million shares from 2.13% in early October 2020, when there were 1.73 million shares; VIC was increased by 2.21% to 1.99 million shares from 1.88% or 1.82 million shares; HPG was increased by 1.77% to 4.42 million shares from 1.15% or 3.87 million shares.
Schroder ISF Frontier Markets Fund, an investment fund with about USD 410 mn by end of October, has allocated 19.6% of its capital to Vietnam's stock market. By early December, the proportion was raised to 23.2%. In fact, this fund has increased its investment in Vietnam significantly. By the end of 2019 the share of the Vietnam stocks was only 10.8%, lower than the share of Vietnam stock in the MSCI Frontier Market Index at 18.8%. In 2020, this fund has increased the proportion of Vietnamese shares to a level higher than the proportion in the MSCI Frontier Market Index. Currently, among the ten largest investments of Schroder ISF Frontier Markets Fund, there are five Vietnamese shares, namely, VHM with 4.8%; VNM with 4.1%; VIC with 4%; HPG with 3.9%; and VRE with 3.6%.
Coeli SICAV I-Frontier Markets Fund worth USD 110 mn, also increased Vietnamese shares in the first weeks of December. In October, the fund capital allocation ratio for the Vietnamese market was about 23%, and by the end of November it increased to 25.6%. The figure as of the first week of December at 25.77%. Although there is no final report on the new proportion for December, some investments in Vietnamese stocks in this fund have increased. For example, at the time of publishing the report in November, MWG had the largest proportion in the fund with 11.4%. PNJ increased from 5.6% to 6.5%. Among the ten largest investments of the fund, there are two more Vietnamese representatives, namely, VNM with 4.56% and VPB with 3.02%.
Templeton Frontier Markets Fund, an investment fund with total assets of USD 345 mn by end of November, has also increased capital allocation for Vietnam's stock market to 18.96%. HPG is currently the Vietnamese stock with the largest proportion in this fund at 4.4%. At the end of October, HPG has a new proportion of about 4.01%, and T.Rowe Price Frontier Markets Fund with scale of USD 100 mn also increased the proportion of Vietnamese shares to 32% in November. Among the fund's five largest investments, there are three Vietnamese shares, namely, MWG with 5.45%; MBB with 5.41%; and FPT with 4.3%.
Trend cannot reverse
The increase in capital allocation for Vietnam's stock market is predictable. However, the surprising point is that MSCI has a one-year roadmap for funds to change asset allocation. This makes new capital inflow into Vietnam's stock market very difficult to identify.
Statistics on the amount of disbursed capital of foreign investors on HSX each week show that in November the buying value increased continuously and strongly. Except for two separate weeks between September and October due to separate deals, the disbursement value for the November weeks was higher than usual. This could be a trace of MSCI's frontier market group investment in buying. Statistics also show that the capital allocation proportion of these funds mainly increased the most in November.
Although the disbursement value increased, the net capital inflow was not remarkable. During the whole of November, there was only one week the market recorded positive net capital. This shows that the amount of disbursed capital of MSCI funds is too small compared to the amount sold by other foreign investors in the market. Since the statistics on the stock exchange only aggregate the general figures for the whole foreign investor block, although there was an increase in the amount of equity capital in one group of funds, the selling was still higher. In other words, the outflow was higher than the inflow.
Before the time when Kuwaiti market upgraded and the Vietnam stock market accounted for the highest proportion in the frontier market group of MSCI, many securities companies believed that there would be about USD 120 mn from ETFs simulating two indices Frontier Markets Index and MSCI Frontier Markets 100 Index buying into Vietnamese stocks. If the funds include active funds, the number can be up to USD 200 mn to USD 210 mn. These estimates are not wrong, but do not include the current one-year roadmap.
Therefore, basically there will still be a sizable amount of capital pouring into the Vietnamese market from now until November 2021, but the impact on the market will be difficult to discern. On the other hand, the scale of several hundred million US dollars is quite small compared to the billions of dollars of active funds and offshore funds that are investing in Vietnam. If funds actively continue to divest, the additional capital from MSCI groups will not be enough to reverse the current net selling trend.