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Visiting The Vietnam ETF

by
June 20, 2016 3:50 pm
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Vietnamese stocks and the VanEck Vectors Vietnam ETF (NYSE: VNM) received something of a slight last week when index provider MSCI Inc. (NYSE: MSCI) opted to elevate Pakistan to emerging markets status, a promotion long-coveted by Vietnam. 

In fact, Vietnam didn't even make the list of frontier markets MSCI is considering promoting to its major emerging markets benchmarks. The lone frontier market to receive that designation was Argentina.

MSCI's view of Vietnam no doubt extends investors' frustration with the Southeast Asian economy. Year-to-date, VNM is down 2.6 percent while the iShares MSCI Frontier Markets ETF (NYSE: FM), of which Vietnam is a member, is up 0.4 percent.

For the three years ending 2015, VNM only outperformed FM on one occasion, 2014, but the Vietnam ETF could be poised to end that skid. At the very least, tactical investors looking for single-country, satellite-type exposure should be rewarded with VNM in the coming years.

Although five-year plans coming from emerging markets usually only garner attention if said plan arrives courtesy of China, investors mulling VNM should look at the details of Hanoi's most recently unveiled five-year plan. One of the most important details being targeted GDP growth of 6.5 percent to 7 percent through 2020.

“Over the past decade, Vietnam has become an increasingly significant player in the Asia-Pacific region. Vietnam potentially serves an important counterbalance to proximate Chinese territorial claims, particularly in the South China Sea. This may be the primary reason why President Obama lifted the U.S. embargo on the sale of military equipment to the country on May 23,” said VanEck in a recent note. “Vietnam's economy has experienced significant growth, with the country's annual GDP growth rate averaging 6.49% from 2000 to 2015. On a quarterly basis, it reached an all-time high of 8.46% in the fourth quarter of 2007. And a record low of 3.14% in the first quarter of 2009.” 

As is the case with China A-shares, Vietnam has to some work to do on the transparency and foreign ownership limit fronts before it is a credible candidate for the frontier-to-emerging promotion. To its credit, Vietnam is taking steps in the right direction.

“The Vietnam stock market has experienced growth from 2007-2015, as seen in the below chart. This trend may continue as the Ministry of Finance is seeking to reduce costs for investors and provide access to capital for aspiring companies by combining the small-cap-oriented Hanoi stock exchange with its larger sibling based in Ho Chi Minh City,” adds VanEck.

Still, the Vietnamese equity is small, finishing 2015 with a combined market value of $60.4 billion, or barely bigger than the current market value of American Express Inc. (NYSE: AXP).


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