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A Possible Bright Spot Among Emerging Markets ETFs

by
January 21, 2016 8:52 am
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The reality is that finding anything resembling a bright spot among emerging markets exchange-traded funds these days is becoming an increasingly difficult task. That task is even more difficult when evaluating the largest emerging markets.

China just posted its lowest GDP growth in a quarter of a century. Russia is mired in its worst post-Soviet era recession, one that could worsen this year. And Brazil, to put things delicately, is the epitome of the phrase “hot mess.”

Though the performance of the lone ETF tracking it is not yet reflecting it, Vietnam could be a bright spot among developing world economies this year.

Related Link: This Emerging Markets ETF Should Be Less Bad

Vietnam: The Emerging/Frontier Markets ‘Bright Spot’?

To be precise, for the purposes of indexes and ETFs, Vietnam is classified as a frontier market, hence its spot as the tenth-largest country weight in the iShares MSCI Frontier 100 ETF (NYSE: FM). Investors looking for a more direct play on Vietnam should consider the Market Vectors Vietnam ETF (NYSE: VNM).

The country has not been shy about its desire to earn a coveted promotion from frontier to emerging markets status from index provider MSCI, but Vietnam is not on the index provider's list of countries positioned to earn that promotion.

GDP Growth Expected For Vietnam This Year

As noted above, economic growth is faltering in several marquee developing markets along with smaller emerging economies, but that is not the case in Vietnam, as the Southeast Asian nation is expected to post GDP growth of 7 percent this year.

“Rising domestic demand and booming foreign direct investment are helping the Southeast Asian nation counter global threats that’s sparked a wave of stock selling and currency depreciation this year,” reported Bloomberg.

However, Vietnamese stocks, at least as measured by VNM, are not yet reflecting that bullish outlook. Over the past year, FM and the MSCI Emerging Markets Index are down an average of almost 26 percent, but VNM is down more than 29 percent. Things have not been much better to start 2016, as VNM is off more than 14 percent while FM and the MSCI Emerging Markets Index are each off just over 12 percent.

“Vietnam’s stock market has also attracted foreign investors, with overseas investors net buyers for the 10th consecutive year in 2015,” according to Bloomberg.

VNM has $332.1 million in assets under management, about $41 million of which has come into the ETF since the start of last year.

Image Credit: Public Domain


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