The depreciation of the Vietnamese dong and the impact of high valuations have led to the largest foreign capital sell-off in the history of the Vietnamese stock market

Due to increasing pressure from currency depreciation and profit-taking triggered by high stock market valuations, foreign investors are withdrawing from the Vietnamese stock market at an unprecedented pace, leading to the largest recorded monthly capital outflow in the market's history.

Global funds net sold local stocks worth $1.5 billion from the Vietnamese stock market in August, the largest single-month outflow since data was recorded in 2009. This massive withdrawal coincides with the Vietnamese dong's exchange rate against the US dollar hitting a historic low, with some analysts predicting further weakness.

This wave of selling has put pressure on the Vietnamese stock market, which had outperformed its Southeast Asian peers this year. The benchmark VN Index resumed trading on Wednesday after a two-day holiday, briefly falling by 0.7%. The pessimistic sentiment in the currency market also continued, with the Vietnamese dong's exchange rate against the US dollar declining again that day.

Tyler Manh Dung Nguyen, chief market strategist at a Ho Chi Minh City securities firm, stated that "concerns over unfavorable exchange rate prospects" are one of the reasons driving capital outflows, while the previous significant market rise also triggered profit-taking actions.

Under Record Capital Outflows, Pressure on Currency Depreciation Intensifies

Data shows that the net selling amount of $1.5 billion in August set a historical record for the Vietnamese stock market. Notably, part of this capital outflow was concentrated in key stocks. Analyst Sufianti pointed out that the net capital outflow from the Vingroup conglomerate last month was approximately 130 trillion Vietnamese dong (about $493 million), accounting for a significant portion of the total outflow.

However, Sufianti also added that capital outflows are not unique to Vietnam. "Most emerging markets are also experiencing capital outflows, which does not seem to be a problem specific to one country," she said.

The exchange rate issue is at the core of current investor concerns. So far this year, the Vietnamese dong has depreciated by about 3.4% against the US dollar, making it the worst-performing currency in Southeast Asia. Analysts expect the Vietnamese dong to face further depreciation pressure due to rising import demand and a narrowing current account surplus.

MUFG Bank predicts that by the end of this year, the exchange rate of the Vietnamese dong against the US dollar may fall to 26,500. In Wednesday's trading, the Vietnamese dong continued its weak trend against the US dollar.

Before the sell-off occurred, the Vietnamese stock market had experienced a strong rise. Driven by economic growth and expectations of potential market upgrades, the VN Index has surged over 32% this year, outperforming most Southeast Asian markets. However, this rebound has also pushed up market valuations, creating conditions for foreign investors to lock in profits and seek exits Despite the large-scale withdrawal of foreign capital, the market is not without support. Nguyen Anh Duc, head of institutional brokerage at SBB Securities, believes that the Vietnamese stock market is supported by "resilient domestic capital flows." In addition, he pointed out that the continuously improving corporate earnings should provide solid fundamental support for the market, which may help cushion the impact of foreign capital outflows.

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