Southeast Asian markets and country-specific exchange traded funds are making a swift rebound off the recent selling as investors flock back into the markets on speculation that the Federal Reserve’s near-zero interest rate environment could last and a new Trans-Pacific Partnership trade deal bolsters the region’s outlook.
For instance, over the past week, the Market Vectors Vietnam ETF (NYSEArca: VNM) jumped 12.6%, iShares MSCI Indonesia ETF (NYSEArca: EIDO) surged 22.0% and Market Vectors Indonesia Index ETF (NYSEArca: IDX) advanced 23.0%.
Emerging currencies are appreciating against the U.S. dollar and investors are throwing money back into the developing economies on speculation that the U.S. Federal Reserve would hold off on raising interest rates. For instance, the Indonesian rupiah currency recently touched a one-month high against the USD. The Vietnam and Indonesia ETFs do not hedge currency risks, so appreciating local currencies help bolster U.S.-denominated returns.
VNM is now testing its long-term, 200-day trend line while EIDO and IDX pushed above their short-term, 50-day simple moving average last week.
The southeast Asia country-specific ETFs are also trading at attractive valuations. VNM shows a 13.5 price-to-earnings ratio and a 0.9 price-to-book. Meanwhile, EIDO has a 13.1 P/E and a 1.9 P/B, and IDX has a 13.4 P/E and a 1.7 P/B. In contrast, the S&P 500 index is trading at a 17.6 P/E and a 2.4 P/B.
Vietnam could be one of the biggest beneficiaries of the Trans-Pacific Partnership trade accord after half a decade of negotiations, reports Isabella Zhong for Barron’s.
“Vietnam’s inclusion in the TPP will drive home its comparative advantage – low labor cost, positive demographics – in gaining access to the more open markets in the U.S. and Japan,” CLSA economist Anthony Nafte told Barron’s.
As Vietnam develops its manufacturing base to take advantage of the favorable trade deal, the country could mimic China in building up its housing and construction sectors – the impact on construction is expected as industrialization typically leads to urbanization. The country has one of Asia’s fastest urbanization rates, which is creating a consumer middle class.
Vietnam has also been strengthening this year while other emerging economies have faltered. According to Capital Economics, Vietnam is one of just five emerging countries, as well as the only Asian country, whose economy is expanding above its average growth rate since 2010, reports Tim Maverick for Trefis. Economists anticipate the Vietnamese economy could grow 6.1% this year and 6.2% in 2016 after expanding 6.0% in 2014.
Indonesia’s markets are also strengthening on the new Trans-Pacific Partnership deal. Additionally, optimism over an economic stimulus fueled recent gains.
Indonesia’s chief economic minister stated that the government will cut prices of diesel fuel, jet fuel and natural gas for industry as part of a third round of economic stimulus measures, reports Viparat Jantraprap for Reuters.
Market Vectors Vietnam ETF
For more information on the developing economies, visit our emerging markets category.
Max Chen 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.