Emerging market exchange traded funds can present investors with significant rewards, if they can handle the possible risk. A classic example of the risk/reward relationship is evident with the Market Vectors Vietnam ETF (NYSEArca: VNM).

“Today, policymakers in Vietnam continue to manage the challenging transition from a centrally planned economy to a market-oriented one. After years of a ‘pro-growth’ policy, the government has shifted toward focusing on macroeconomic stability, as inflation rose almost 20% in 2011. Other macro concerns include a depreciating currency, wide trade, and budget deficits and financial problems at dominant state-owned companies,” Patricia Oey for Morningstar wrote in a recent analysis. [ETF Chart of the Day: Vietnam]

As various emerging economies posted large losses last year, the iShares MSCI Emerging Markets (NYSEArca: EEM) lost around 23%. For the same time period, VNM lost about 47%. [Best Emerging Market ETFs]

However, these losses are not enough to scare investors away for good. The growth rate for this frontier market was at 5.9%, down from an anticipated 6%. Analysts are calling for a growth rate of 6.1% this year, attracting the interest of investors yet again, reports Dave Fry for The Street.

As of late, VNM has posted trading volumes around twice the average, indicating investors are willing to take this country, and the risk, on for a potential payoff. VNM has a diversified portfolio that is weighted more toward small and medium sized companies, rather than large-caps. [ETF Chart of the Day: Emerging Markets]

Some of the risks facing Vietnam include rising inflationary pressure, liquidity issues within the banking system and a growing trade deficit. While the country is still grappling with the transition from a centrally-planned economy to a market-oriented one, other concerns include a depreciating currency, a shortage of skilled labor and a large portion of the population still living in poverty.

Market Vectors Vietnam ETF

Tisha Guerrero contributed to this article.

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.

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