Vietnam ETF: Catching A Falling Knife

The Market Vectors Vietnam ETF

is a trader's dream and an investor's worst nightmare when it comes to emerging markets ETFs. Traders ought to love this thing because it offers decent volatility in either direction. Long-term holders should take a pass, if for no other reason than VNM can't make up its mind about being a good kid or a bad apple. The fact that VNM has traded in a range of roughly $23-$30 since December illustrates both of the above points, but we know what's really go on here and it's the same thing that has been plaguing VNM for a year now: The four-letter word of INFLATION. Vietnam was something of a harbinger of things to come with other Southeast Asian emerging markets as multiple currency devaluations and soaring inflation hampered VNM's progress in 2010. Welcome to 2011 and the song is the same for VNM. Vietnam's central bank has raised rates twice in the past week. Talk about desperate to stem inflation. Vietnam is under pressure to curb inflation that is poised to accelerate from a 23-month high as electricity prices rise and four currency devaluations in 15 months spur import costs, according to Bloomberg News. Put another way, VNM faces a witch's brew of a devalued currency, surging inflation and an incompetent government. That gets you an ETF worth trading (perhaps on a bounce of support at $24), but not worth holding for more than a few days, at least not yet. A violation of support at $24 could take VNM to $21 or lower.