Trump achieves his goal? FED signals to change QT status to QE

The Situation and Size of Fed's QE (2020–2021) and QT (2022–2024)

COVID-19 crisis (2020–2021), the Fed cut interest rates to 0–0.25% and implemented large-scale QE. On March 15, 2020, the Fed committed to buying at least $500 billion in Treasury bonds and $200 billion in mortgage-backed securities, then announced “unlimited” bond purchases to stabilize the market. From June 2020, the Fed maintained buying about $80 billion in government bonds and $40 billion in MBS per month to increase assets on the Balance Sheet until it began to taper in late 2021. As a result, the Fed’s balance sheet increased sharply from about $4.1 trillion before the pandemic to a peak of nearly $8.96 trillion in April 2022. In contrast, during the QE cycle (balance sheet reduction) from mid-2022, the Fed gradually reduced reinvestment of maturing debt: initially from June 1, 2022, it imposed a cap of $30 billion in bonds/month (increasing to $60 billion after 3 months) and $17.5 billion in MBS/month (increasing to $35 billion). From the second half of 2022, the Fed continuously raised interest rates to 5.25–5.50% (with a period of expected QE rate reduction) and from June 2024 reduced the reinvestment cap to $25 billion for the Treasury. Overall, QE 2020–21 created abundant liquidity and extremely low global interest rates, while QE 2022–24 gradually withdrew liquidity from the system and pushed up domestic interest rates.

Foreign capital flow trends in frontier and emerging markets

Under the impact of QE 2020–21, foreign capital flows initially withdrew sharply when the pandemic broke out (March–April 2020), but were soon relieved by liquidity injections from the Fed and major central banks. The IMF recorded “large extraordinary net portfolio outflows” in Q1/2020, but after April 2020, the pressure eased thanks to easing policies. In the second half of 2020 and 2021, the general trend was for capital flows to return to EM/FM markets due to low global interest rates and expectations of economic recovery. By November 2022, the IIF calculated portfolio flows to emerging markets at around USD 37.4 billion, the largest since mid-2021, mainly due to inflows into bonds ($14.4 billion) and Chinese stocks ($8.5 billion) as the market recovered.

However, in the QT cycle (2022–2024), foreign capital flows tend to reverse and withdraw sharply. Rising US interest rates and a strong USD have pulled money from risky markets to safe assets. Statistics in 2022 show that foreign investors withdrew a record ~57 billion USD from Asian stock markets (Taiwan ~41.6 billion, India ~15.4 billion, South Korea ~9.6 billion) - the highest level since the 2008 crisis. The chart below illustrates monthly foreign capital flows (negative is net withdrawal) in some Asian stock markets at the end of 2022, in which the dark gray and orange columns show the months of strong net withdrawal (M6, M8, M9, M11/2022). Note that Vietnam also recorded net capital withdrawal (negative column) in these months.

The full-year picture is also representative: 2022 saw the largest net foreign outflow from Asian equities (nearly -60 billion USD) since 2008. By the end of 2024, IMF statistics showed that EM suffered negative net capital flows in Q4/2024, the first time since Q1/2020, mainly due to a sharp decline in foreign investor capital flows. In Vietnam, Dragon Capital reported continuous net foreign selling: as of October 2024, it had withdrawn about 3.0 billion USD (peaking at 388.8 million USD in October 24). In short, QE (2020–21) facilitated strong foreign capital flows into risky markets, while QT (2022–24) reversed this trend and put liquidity pressure on EM/FM.

Impact on performance and structure of investment funds in Vietnam stock market

Strong/dry foreign inflows have had a clear impact on the NAV performance and portfolio composition of EM/FM funds. During the QE period, most emerging market funds saw good NAV growth thanks to strong asset prices. In contrast, since 2022, many EM/FM funds have reported declining NAVs and net outflows. For example, the UK-focused emerging market fund Ashmore saw total assets under management fall from $87.3 billion to $78.3 billion in Q1 2022 (down 10.3%), including $3.7 billion in net outflows and nearly $5 billion in losses due to poor investment performance. These funds have reduced their exposure to low-yield external debt and rebalanced toward higher-yielding domestic bonds, as well as reduced their exposure to low-yield stocks. In Vietnam, Dragon Capital's VEIL fund reduced its NAV by about 20% in 2024 when the prices of many key stocks (FPT, MWG) adjusted due to net foreign selling. As a result, New Frontier/EM funds had to increase their cash ratio (USD) and stock weighting structure, reducing their exposure to the high-risk EM foreign exchange market. At the same time, the funds' overall risk tolerance decreased (prioritizing defensive assets, investment-grade bonds).

Macro factors influence

In addition to Fed policy, many intertwined macro factors determine foreign capital flows. First is the USD’s performance: in the second half of 2022, the USD increased sharply (reaching a ~20-year high), reducing the attractiveness of EM assets and increasing USD funding costs. Global inflation spikes (US to ~9% in mid-2022) and the consequent Fed tightening also create instability. Notably, geopolitical risks are increasing: the conflicts in Ukraine and the Middle East are assessed by the IMF at record highs in several decades and have “spillover effects” on asset prices, especially in countries with thin economic buffers. According to the IMF, “major events – especially military conflicts – have disruptive and persistent effects on asset prices”, increasing the sentiment of fleeing EM/FM markets. Finally, slowing global growth (global GDP deceleration in 2022–23) also reduces the demand for risky investments. In short, the Fed QT coincided with a strong USD, high inflation and major conflicts that together amplified the trend of capital flight from frontier and emerging markets.

Foreign capital flow trends in Vietnam market in the coming time

Considering the factors affecting foreign capital flows into the Vietnamese market in the coming time, we need to look at 3 factors:

1. The FED is signaling a policy reversal from QE to QE after recent reports showed that the pace of asset reduction on the Balance Sheet is slowing down and increasing slightly in the May 8, 2025 report, indicating that indirect pressure from the Trump administration on monetary policy in recent times through the imposition of reciprocal tariffs has caused a mild crisis in the global financial market.

   
   

   

   
   

2. Vietnam's stock market has high expectations when it is on the list of candidates for upgrading from a frontier market to an emerging market in the upcoming September 2025 rating by FTSE Russell. The possibility of being upgraded is high when the stock market has met almost all the legal requirements, trading systems... set by the organization. The KRX system was also put into operation right after the April 30 - May 1 holiday, which is a premise for the development of many new products in the market such as short selling, T+0 trading.

   
   

   

   
   
   
   

3. The 8% GDP target set by the Government is still on track and exceeded in the first quarter, which is a signal showing the Government's determination in all economic aspects. New laws are continuously issued and urgently implemented to create favorable conditions to welcome foreign investment flows back to the Vietnamese market in the coming time.