The Market Vectors Vietnam ETF (NYSEArca: VNM) is up 4.3% this year and the lone Vietnam ETF is easily outpacing the iShares MSCI Frontier 100 ETF (NYSEArca: FM), a fund in which Vietnamese stocks account for 3.6%.
However, VNM has plunged almost 21% since its September, confirmation the ETF is in a bear market. The recent downturn in Vietnamese equities has market observers pondering what 2015 has in store for the Southeast Asian nation’s equity markets.
In positive news, most forecasts have Vietnam’s 2015 GDP growth checking in at north of 6% with inflation remaining benign by the country’s standards at 5%.
“It isn’t clear if the positive economic picture will translate into continued stock gains, especially amid concerns over whether the market’s structure is really ready for prime time,” reports Leslie Shaffer for CNBC.
That market structure includes an opaque legal system and pesky foreign ownership limits, though Vietnamese policy makers and the central bank have been working to ameliorate the foreign ownership limit in an effort to attract more direct investment from abroad. [Reconsidering the Vietnam ETF]
Plans by Vietnamese policymakers and the central bank to lift foreign ownership limits are widely known and date back to early 2013. There is still optimism that Vietnam will increase foreign ownership limits in financial services companies, a sector that represents nearly 38% of VNM’s weight.
On Tuesday, Auerbach Grayson sounded a bullish tone on Vietnamese banks, including Vietcombank (VCB.Vietnam) and Military Commercial Joint Stock Bank (MBB.Vietnam), Barron’s reported.
To its credit, Vietnam is nothing if not ambitious. Earlier this year, it was reported that Vietnam’s State Securities Commission has formed a team to study what it will take to earn the country a promotion to emerging markets status. Foreign ownership limits are among the issues making even a medium-term entry into the MSCI Emerging Markets Index a long shot for Vietnam.
MSCI does not have Vietnam on its list of markets that could potentially be upgraded to emerging markets status. When the index provider revealed its annual market classifications in June, no frontier markets were listed as being in line for a possible upgrade to emerging markets status.
Vietnam’s emerging markets ambitions will not be easily rewarded. It took Qatar and UAE, the first Middle East nations to earn the frontier-to-emerging upgrade, seven years of being on MSCI’s watch list for potential promotion. [Vietnam Eyes Emerging Markets Promotion]
An important issue for VNM in 2015 will be Vietnam’s ability to liberalize its financial markets and attract foreign institutional investors, many of which have been leery of the country’s legal structure and perceived lack of liquidity.
Size is another issue that has kept foreign institutional investors at bay. By comparison to other emerging Asian economies, Vietnam’s is small. There have been periods in the past when the combined market value of stocks trading in Hanoi and Ho Chi Minh City has been less than major U.S. companies such as Apple (NasdaqGS: AAPL) and Exxon Mobil (NYSE: XOM).
Just 10 stocks make up 80% to 90% Vietnam’s benchmark VN Index, according to CNBC.
Market Vectors Vietnam ETF
