Vietnam ETF Could Shine in 2014
January 2nd, 2014 at 12:01am by Tom Lydon
If the focus is on markets such as Indonesia and Thailand, it is accurate to say Southeast Asian equities disappointed last year.
Vietnamese shares were not part of that disappointment. The benchmark VN Index posted a second straight annual gain, rising almost 22%. The Market Vectors Vietnam ETF (NYSEArca: VNM) finished 2013 slightly lower, but its modest loss (less than 1%) meant the fund outperformed its Indonesia and Thailand counterparts. Bigger things could be awaiting VNM, the lone Vietnam ETF, in 2014.
Vietnam has reigned in inflation and observers of the market believe bankers and policymakers there have successfully installed stable fiscal and monetary policies. “Stable law and order, a high savings rate and other cultural factors make Vietnam a good place for companies to do business. With approximately 75% of the population still working in agriculture, there is plenty of room for further growth,” reports Jon Springer for Forbes.
Additionally, policymakers have been working on initiatives to encourage foreign investment by raising the cap on foreign ownership in local companies to more than 49%. If not for restrictive, government-imposed limits on foreign ownership of Vietnamese stocks, there is a chance 2013 could have been even better for VNM. [Vietnam ETF Restrained by Foreign Ownership Limits]
Vietnam is a frontier market, but as is the case with several marquee emerging markets, stocks in the Southeast Asian nation are inexpensive. Stocks there trade at less than 13 times profits with a third trading below book value.
The promise of increased foreign ownership limits and compelling valuations have already prompted increased foreign direct investment and Forbes reports that the Vietnamese government could lift the foreign ownership limits this month or by February with the new laws taking effect in the second quarter.
That could help VNM skirt another second- to third-quarter swoon, something the ETF endured the past two years. VNM was up 31% in 2013 through mid-February, but after trading around $23.40 in February, the ETF had sunk below $19 by late April. [Vietnam ETF Soars in Early 2013]
VNM allocates almost 14% of its combined weight to the materials and consumer staples sectors, which are expected to be leaders of Vietnamese earnings growth in the year ahead. As is typical of many single-country emerging and frontier markets ETFs, Vietnam has a significant financial services allocation (almost 38%), indicating the fund could benefit from or is vulnerable to successful or unsuccessful efforts to reform Vietnam’s fractured banking system.
Market Vectors Vietnam ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.