Viet Nam's stock market has enjoyed a long, four-month winning streak, and by the end of April had become one of this year's fastest growing markets in the world. Investors were happy and investment funds were optimistic, with improved net asset values.

Positive signals from the stock market seemed a solid testament to the Government's economic policies. But then May arrived.

For investors, May is famous for the saying, "Sell in May and go away." However, with the VN-Index reaching a recent peak of 492.44 points, nearly everyone had forgotten the saying. Landmarks of 500 and 600 points were frequently mentioned.

But then the unexpected happened. In eight consecutive sessions beginning May 9, the VN-Index lost over 10 per cent of its value.

Hoa Binh Securities Co analysts have attributed the plunge to three factors. First, the stock market has risen for a long period without a significant adjustment and the prices of many shares were no longer bargains. Second, the optimism of investors had gradually been eroded by concerns that economic growth had stagnated. The central bank's efforts to cap lending interest rates were not seen as very effective as the number of businesses reporting losses, halting production or filing bankruptcy had increased dramatically.

Finally, the troubled global economy, worsened by the eurozone debt crisis, had forced many foreign investors to withdraw capital from emerging markets. In Viet Nam, foreigners in May continuously sold large-cap stocks which significantly affected the movements of the VN-Index, including shares of Vietcombank (VCB), insurer Bao Viet Holdings (BVH) and real estate developer VinGroup (VIC).

In our opinion, the continuous sales by foreign investors were the primary cause. And we predict that Viet Nam's stock market will continue to face a strong wave of capital divestments by foreign investment funds this year.

Dragon Capital's VGF and VEIL funds, the combined assets of which reached US$628 million in May, currently control substantial holdings in such blue chips as BVH, VIC, food processor Masan Group (MSN), developer Hoang Anh Gia Lai Co (HAG), Phu My Fertilisers (DPM), software giant FPT and Military Bank (MBB). These stocks are all likely to be affected by upcoming sales by these funds.

According to some fund managers, the recent additional listing of 1.78 billion shares by Vietcombank (VCB), making it the leading share on the market, as well as the listing of PetroVietnam Gas (GAS), has affected the restructuring of portfolios by exchange-traded funds (ETFs).

The latest data from Bloomberg shows that money is being pulled out of emerging markets worldwide, totalling $5.1 billion in just one week from May 10-16 in 12 countries and territories. In Japan, $1.92 billion was withdrawn during the period, while over $1 billion was pulled from markets in Taiwan and South Korea, $573 million from Brazil, nearly $300 million each from Australia and Mexico, and $156 million from China.

In Viet Nam, foreign investment funds have withdrawn $2.4 million since the beginning of this year. Based on percentages, Viet Nam could top the list for foreign divestments.

In the current economic context, the stock market is still an attractive investment channel. But, after May's sharp fall, many investors have became more cautious about the future of the market. The influence of blue chips and pressures behind movements by investment funds should be closely monitored.

In June, the market is forecast to return to equilibrium and share prices will fall back to reasonable levels. Economic policies, including a stimulus package for businesses, lower interest rates, and lower fuel prices, are also expected to help stimulate the market in the coming months.