Headlines Lifting Vietnam ETF
On a day that has turned into a sea of red for emerging markets ETFs, the Market Vectors Vietnam ETF (NYSE: VNM) is higher by 2.3 percent on volume that is already approaching twice the daily average.
An array of bullish headlines pertaining to Vietnam is the reason VNM, already one of 2013's best-performing ETFs of any type, is continuing its bull run on a day when scores of international funds are languishing.
Over the weekend, VietNamNet Bridge reported that the country's State Securities Commission is moving forward with plans to merge Vietnam's two stock exchanges. While the process is expected to take several years (2015 looks like the expected completion date), the combination of bourses in Hanoi and Ho Chi Minh City could bring a much-needed increase in liquidity to Vietnamese stocks. Regulators there have recently been working to boost liquidity on both Vietnamese exchanges. Last month, it was revealed that the trading band limits for stocks listed in Hanoi and Ho Chi Minh City were lifted to 10 percent and seven percent, respectively from seven percent and five percent.
Experts have pointed out that combing the two exchanges would lead to one going away. However, having one central exchange could lead to lower operating and transaction costs while bolstering liquidity and allowing Vietnam to be more on par with other exchanges in Southeast Asia.
Lower costs and improved liquidity could lead to increased investor demand for Vietnamese shares while boosting profits for the country's banks and brokerage houses. That would be critical for VNM because the ETF allocates almost 43 percent of its weight to financial services names. In addition to the exchange merger news, VNM may also be getting a lift on news that Global Sphere, a Dubai-based development company, will launch a $30 billion project being hailed as "Hanoi Wall Street".
Located near the Hanoi Airport, the project represents the largest investment ever in Vietnam by a firm from UAE and the first phase could mean $10 billion will be spent by 2020.
That news can be viewed as particularly important because Vietnam's foreign direct investment number slumped in 2012 . The trend may be reversing course.
In late December, Japan's Mitsubishi UFJ, that country's largest bank, announced a $743 million deal to acquire 20 percent of Vietnam Joint Stock Commercial Bank for Industry and Trade, or VietinBank. That deal represents one of the largest transactions ever in a Vietnamese bank by a foreign institution.
Perhaps adding to the good cheer is a Bloomberg piece quoting a money manager who expects the VN Index to surge 33 percent this year. Valuations on Vietnamese stocks are arguably compelling.
The VN Index trades at 11.2 times estimated earnings, 7.4 percent below the average valuation on the MSCI Frontier Markets Index, according to Bloomberg data.
At the ETF level, VNM had a P/E ratio of just over 10 with a price-to-book ratio of 1.26 at the end of last year. That compares to a P/E ratio of over 15 and a price-to-book ratio of almost 2.7 for the iShares MSCI Frontier 100 Index Fund (NYSE: FM). Vietnam is the tenth-largest country weight in FM with an allocation of almost 2.6 percent.
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