Vietnam ETF’s Slide Could Continue

The Market Vectors Vietnam ETF (NYSEArca: VNM) gained 2.5% on above average volume last Friday, but investors might do well to not be seduced by that one-day mirage from the downtrodden VNM.

During Asian trading Monday, Vietnamese stocks sank amid on an ongoing territorial dispute with China. Vietnam’s benchmark VN Index (VNINDEX) sank 4.6% at 10:44 a.m. local time and was poise for its lowest close since early January, according to Bloomberg.

Vietnam and China are at odds regarding China’s move to tow an oil rig into the South China Sea earlier this month, a move that has sparked protests in Hanoi and sharp rhetoric from Vietnamese Prime Minister Nguyen Tan Dung.

The impact on VNM, the lone Vietnam ETF, is becoming palpable. Despite last Friday’s pop, VNM lost 2.4% last week.

Those losses come as VNM is struggling once again in the second quarter. As ETF Trends reported last month, VNM debuted in August 2009 and its best second-quarter performance was a 3.1% loss in 2010. The ETF’s average second-quarter loss over the past four years is 7.6%. [Another Second-Quarter Slump for the Vietnam ETF]

Since April 1, VNM has tumbled 10.6%. More importantly, the ETF has plunged 16.6% since its Feb. 13 peak, putting the fund within spitting distance of the 20% decline necessary to enter bear market territory.

This year, Vietnamese equities are dealing with a new set of second-quarter blues, namely tepid appetite by foreign investors for initial public offerings of state-run companies. Vietnam’s plans to loosen foreign ownership limits on state-controlled companies were seen as a major catalyst in VNM’s stellar performances late last year and early this year. Those factors come in addition to the kterritorial flap with China. [Vietnam ETF Looks for Government Support]