The Market Vectors Vietnam ETF (NYSEArca: VNM) is down 7.7% this year, a decline that is more than 500 basis points worse than the iShares MSCI Frontier 100 ETF (NYSEArca: FM), a fund in which Vietnam is the ninth-largest country weight.
To its credit, VNM has recently perked up. Even with Tuesday’s small loss, the lone Vietnam ETF is up 4.4% since May 18, a rally owed in large part to resurgent Vietnamese oil stocks.
VNM “has been performing better than it previously was due to good news out of two of its oil-related holdings: Premier Oil and Soco International. Since these companies’ fortunes are tied to the price of oil, I can only guess that their positive performance has been driven by oil’s price improvement over the past three weeks, due to the weakening in the dollar,” according to Market Vectors.
Premier Oil and Soco International had weights of in VNM of 5.86% and 3.84%, respectively, as of May 22, according to Market Vectors data.
Although Vietnam is not an OPEC member like several other countries with the frontier markets designation, oil has factored prominently in the ETF’s performance. For example, VNM was unable to escape 2014’s oil-induced slide for frontier markets. Although both ETFs managed 2014 gains, those gains were accrued in the early part of the year, but over the past 12 months VNM and FM are each down nearly 9%. [Oil Drains Frontier ETFs]
Only recently did VNM close above its 50-day moving average and the ETF has 10.3% to run to get back to its 200-day line, a level the fund has not closed above since November. Global investors are waiting on Hanoi to further increase foreign ownership limits, which could be another catalyst for VNM.
“The Southeast Asian nation is drafting a decree to remove the current limit of 30% on foreign ownership of banks and 49% on all other companies. The decree is due around July 1, though skeptics question whether it will happen that soon. It also may take time for Vietnam to formulate specific rules for increasing foreign ownership, making the whole process a gradual one,” reports TheStreet.
It is widely expected Vietnam will boost foreign ownership limits for some sectors to 60% this year from 49%. That could stoke institutional buying of local stocks, lifting VNM along the way.
Last year, Vietnam formed a commission to explore taking the necessary steps for the country to shed its frontier status and gain entry into the widely followed MSCI Emerging Markets Index.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 Wants EM Promotion]
Market Vectors Vietnam ETF
