The Market Vectors Vietnam ETF (NYSEArca: VNM) could trade higher Tuesday on news that the Southeast Asian nation has increased the foreign ownership limit in its banks.
“The limit for foreign so-called strategic investors will be increased to 20 percent from 15 percent, while the cap for total foreign holdings at any local bank remains at 30 percent,” Bloomberg reported. Prime Minister Nguyen Tan Dung can, in certain cases, lift the limits even further to help financially crimped Vietnamese banks.
Although plans by Vietnamese policymakers and the central bank to lift foreign ownership limits are widely known and over a year old, the news is nonetheless good for VNM because the ETF allocates nearly 36% of its weight to the financial services sector. Several of the ETF’s top-10 holdings are bank stocks.cessful effort to establish a TARP-like management company to absolve Vietnamese banks of bad debts and sour loans. [Vietnam ETF Could Soar in 2014]
Although Vietnamese stocks were among the world’s best performers last year, VNM closed the year with a modest loss due to the ails of Vietnam’s banking system. Those woes included the government’s flailing though ultimately successful to establish a TARP-like institution to absolve the country’s banks of bad loans and sour debt. Vietnam’s financial systems is burdened with the highest rate of bad debt in Southeast Asia, Bloomberg reported.
Even with the problems in the country’s banking system over the past two years, some foreign banks have shown an appetite for taking stakes in Vietnamese financial services firm. That could be a sign of things to come as the new ownership limits go into effect on Feb. 20.
Policymakers have been working on initiatives to encourage foreign investment by raising the cap on foreign ownership in local companies to more than 49%. A formal decision on that initiative is expected as soon as later this month. [Vietnam ETF Restrained by Foreign Ownership Limits]
VNM holds 28 stocks and has $372.2 million in assets under management.
Market Vectors Vietnam ETF