Vietnam ETF Falls After Local "Flash Crash"

The Market Vectors Vietnam

is trading lower by 1.3 percent Wednesday after the Ho Chi Minh City Stock Exchange's VN Index (VNINDEX) plunged 2.7 percent in the last minute of trading in Wednesday's Asian session in what some traders viewed as a "mini flash crash." The last minute tumble for Vietnam's benchmark index represented a stunning reversal from the action seen earlier in the session when Vietnamese shares were flirting with gains of nearly two percent after traders sent stocks to 26-month highs. Traders bid up Vietnamese shares after Vietnam National Petroleum announced reduced prices for diesel, gasoline and kerosene,

. Reduced fuel prices could be a sign that Vietnamese central bankers and policymakers are feeling comfortable with the country's rate of inflation. Ebullience regarding lower fuel prices was not enough to erase the sting of the late-day slide. Perhaps the good news is that the late tumble in Vietnamese stocks was caused by portfolio rebalancing by locally listed ETFs. At least that appears

. Vietnamese stocks are the second-best performers in Asia this year, trailing only their Japanese counterparts, but VNM has wilted in recent weeks. VNM opened 2013 below $19 and proceed to flirt with $23.60 by mid-February. Year-to-date, VNM is up nearly 6.3 percent, but over the past month the ETF is down by roughly the same amount. The ETF's recent woes can, in large part, be attributed to the government

. Vietnam planned to form a TARP-esque debt asset management company to absolve Vietnamese banks of scores of sour loans. However, Prime Minister Nguyen Tan Dung rejected the most recent plan in late March, saying it did not go far enough. The proposed Vietnam Asset Management Company was configured to only deal with banks' bad loans, not their bad debts. This is significant because VNM devotes 38 percent of its weight to the financial services sector and several of the ETF's top-10 holdings are bank stocks. The State Bank of Vietnam had hoped to have the Vietnam Asset Management Company up and running by the start of this month, but the central bank has been sent back to work by Dung, who is demanding a broader-ranging plan to help shore up the Vietnamese banking system. Clearly, the bad debt issue is a dark cloud for Vietnamese banks and, by virtue, VNM. In the event of further declines, VNM needs to hold support at $19 or risk returning to this year's lows. For more on Vietnam, click

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